November 17, 2013
Reaching for alpha is folly. What is alpha when it comes to investing and why should you avoid it? Alternative?
Reaching for alpha is folly. What is alpha when it comes to investing and why should you avoid it? Alternative?
When it comes to investing, reaching for alpha is when a person tries to find ways to increase the return on her/his investment beyond the market return. You should avoid reaching for alpha, because, like Finley has said, it is a loser’s game. Instead, people should invest in no-load index mutual funds at Vanguard.
Well said, Katherine. The research has been in for quite some time. Those “smart” experts who try to beat the markets (reaching for alpha) by timing the market, predicting the market, and outsmarting other “smart” experts consistently fail to do it. The benchmark index wins time and time again. That is why we choose to buy no-load index mutual funds. We want to capture the market returns, which will end up placing us in the top 20% of all investors in the world. That’s good enough for me, how about you? Let’s see what this guy has to say.
Most investors, both institutional and individual, will find the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.
– Warren Buffett