“…now, thanks to technology, we have a whole new paradigm.  No, a richer paradigm…My point is understanding institutions and how they make implementation of these ideas possible.”

(Nobel Laureate Robert Merton, quoted by Peter Bernstein) 

In our final posting on Peter Bernstein’s new book Capital Markets Evolving, we thought we would pass along some of the pearls of portable alpha wisdom in it.  While the book covers several topics of interest to readers of this blog (efficient markets, validity of the CAPM, 1X0/X0 etc.), we will focus our attention on the core themes of portable alpha and its enablers. 

Bernstein addresses these themes early in the preface to the book, setting the following context:

Alpha and beta – once upon the time the unpalatable language of the Capital Asset Pricing Model – have become critical ingredients in the most sophisticated forms of portfolio management and investment performance measurement. (page xvii)

While Capital Ideas focused on beta – the behavior of markets and how to price portfolios in light of that behavior – Capital Ideas Evolving focuses on alpha – or the achievement of returns in excess of some benchmark. (page xxii)

Then after covering several of the other issues in the first half of the book, he turns his attention to the beautiful variable:

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