A beta that is less than 1 just shows that there is little correlation between the portfolio and the market. So, if a portfolio swing wildly in a random manner that is not correlated to the market, it will still have a less than 1 beta. Hence, the true risk of the portfolio may not get reflected in the beta. PA
1. the giant in the room is beta. 2. the little pieces are alphas. 3. the weighed sum of all alphas is negative. Consequences: A. 3. tells us that if you was to invest for long term invest in an ETF. You also save commissions/etc and management fee, in addition to eliminating the risk of betting on the wrong donkey. This further says that alpha is a negative sum game for all investors (even before considering management and operational fees). B. 1. is the reason why I (and you?) trade, and why I trade indices rather than individual stocks. The king is beta. The rest is just talk among the losers to beta.
Sure, thats great theoretically speaking....I think that misses the motivations of what consumers of investment products are looking for though. Most i'm sure would be quite happy with a product that beat the S&P the last 5 years and is only down 5% this year..To say that is bad portfolio management or whatever is to ignore the alternatives.
alpha is everything and the best measure of skill in a trader is the alpha on a weekly basis, according to monroe trout. (who has the highest weekly alpha is the best trader) most people are only bull market heros and think of themselves as financial genius until the bear market starts