“Homework” is the Only Route to True Alpha
Feb 16th, 2007 | Filed under: CAPM / Alpha Theory, Guest PostsProfessor Harry Kat has been quoted extensively in the media and has become somewhat synonymous with hedge fund replication. He has quickly developed a reputation for his irreverent views and his colourful commentary on the state of the hedge fund industry. Love him or hate him, he’s got plenty of opinions to go around. So “who better to write for a blog?”, we asked ourselves. As a result, here is another edition of our occasional guest column we christened: “The Kat’s Meow”.
The Kat’s Meow - February 16, 2007
Alpha is the part of an investor’s return that cannot be explained by the risks that he has been taking. It is the result of his specific investment skills. Of course, almost by definition, superior skills are scarce. However, that is not the impression one would get from the many magazines and conferences on the subject. From these, it appears that alpha is just about everywhere but the only one who is not getting any is you. The situation is not different from your high school days when everybody claimed to be having sex all the time, except you. The solution to this conundrum is simple, however: there is a lot less alpha out there than many people claim. In that respect alpha is again very similar to high school sex.
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