Breaking Down And Recalibrating Alpha

Asset management is dying to all but those who recognize alpha is a force of nature.

It is frighteningly hilarious to witness how we, humans, perpetuate grandiose yet grave depravity of reason by assigning boisterous nomenclature, in ancient Greek this time, to infer more credence to consequence debilitatingly confounded with cause (Nietzsche). In that vein, let me reiterate the words of Nobel prize winner Richard Feynman:

Everybody names everything wrong


Frighteningly, because such confounding is responsible for the anthropogenic cascade we face today, with severe consequences to all humanity’s well-being. Buckets of nonsense are filled to the brim with aging suppositions, misplaced causes, and flawed declarations of systems sold as unquestionable dogmas sloshed around in finance. People’s livelihood depends on the regurgitation of said religions.

Vile Alpha

Indeed, we now have a financial system eleven times the size of production in the U.S. (as a contribution to GDP), a feeble and non-renewable endeavor, producing the kind of alpha only people with blinders on can admire. In aggrandizing admiration of how the arbitrage of finance manages to take society for a ride with an aura of survival of the fittest, while the average age of Americans is steadily declining.

70% Of Americans are chronically dependant on prescription drugs costing over $329 billion per year. We have become the second most obese country in the world. 25% of kids attending public schools are on food support, with an extreme poverty rate of 15.8%, and 48 million people surviving, get this, on food stamps. Many Americans were killed from respiratory diseases from smoking as the third-leading cause of death from an ignorant rat-race of tobacco alpha.

This is the underbelly of the hunger for vile alpha we rarely divulge to the world.

I have no respect for this kind of alpha, not because I don’t want people to make money where the money is due, but because this kind of evolutionary poison covered in sheep’s-clothing is directly responsible for our anthropogenic cascade.

Buffet and Madoff

I have zero respect for Warren Buffet, helping sell more sugar-water to economically vulnerable countries worldwide, accountable for tooth-decay with local healthcare standards completely unequipped, leading to devastating consequences of the overall health of their citizens. An overdose of sugar is known to be the most dangerous drug to humanity. Said alpha soon to yield debilitating subprime beta Buffet will turn his back to.

Zero respect is due to heralded financiers like Warren, even as he plans to give most of his earned alpha away at some point. The damage is done at money-in, to which no-money out can act as a remedy. As an ounce of societal prevention could have been worth a pound of cure.

We must all see through the rhetoric and recognize one does not become a better person by giving the reward of socioeconomic bank robbery away after you robbed the bank. For the same reason, Bernie Madoff did not become a better person because he bought art from his exploitation of “alpha.” Both Madoff and Buffet poison humanity, each with their scheme of soiling society’s trust in finance.

Define Alpha

The terms of endearment in finance must be challenged by more than the empirical breakdown explained above. Our best normalization of evolving truth must validate the definition of alpha. For any term inferring extraordinary value or claims must be defensible and deliver extraordinary evidence. So, let’s analyze the very definition of alpha, using the explanation of Investopedia:

“Alpha” (the Greek letter α) is a term used in investing to describe a strategy’s ability to beat the market, or it’s “edge.” Alpha is thus also often referred to as “excess return” or “abnormal rate of return,” which refers to the idea that markets are efficient, and so there is no way to systematically earn returns that exceed the broad market as a whole. Alpha is often used in conjunction with beta (the Greek letter β) , which measures the broad market’s overall volatility or risk, known as systematic market risk.

As my readers will remember, markets are inanimate objects, and tying a definition and expectation to inanimate objects is manmade make-believe, or in legal terms, tossed out as hearsay. Markets are, in fact, at best, a temporal consequence from a marketplace at its cause. Hence, tying the definition and expectation of outlier returns to a consequence rather than a cause also tags this alpha’s dependence as a rebel without a cause. Outlier returns do not come from a broad base acceptance by markets (hold your breath) as such recognition would, by definition, make its gains equally uniform, the exact opposite of outlier returns.

Second, markets are not known for their efficiency, for a market is merely a consequence of gathering marketplace participants at its cause. Those participants are making decisions to each their own, thus yielding what an observer would interpret as irrational decisions. Or better, decisions that are only rational to an individual participant. The sum of irrationality produces more irrationality, not more rationality, and thus again deflates alpha’s supposed meaning.

Real Alpha

The ill-defined and laissez-faire compass of finance, uncorrelated to sensible evolutionary objectives and only making sense to a vile-maxim of selfish interests, is now stuck in a rut of its own making, leading one asset manager to say this about the cannibalization of alpha:

Asset management is dead, with everyone chasing the same alpha.


That comment is not the first of the sort I received from renowned asset managers. The principal thesis, methodology, and comprehension of alpha are all dead. The asset management industry desperately looks for answers, and the bright-eyed and bushy-tailed know they are not coming from the placebo of ESG, hinging on other flawed precepts.

Real alpha is the alpha that does not sell our evolutionary strengthening short and does not poison our humanitarian well. Instead, it expands the fractal of human ingenuity and capacity in the direction of our evolutionary enhancement.

The kind of alpha that is just as renewable as the resources to which its risk-profile is applied, with allocations to specific endeavors that put a stop to our anthropogenic cascade and assigns evolutionary merit per nature’s rule. Asset managers must head back to school to recognize how evolutionary principles spawn the renewal of human ingenuity and capacity one can easily monetize.

By nature’s impetus, Alpha is omnipresent and aplenty as the unrelenting driver to expanding evolution. We best align our pursuit of alpha, shaped by our financial systems’ design, to nature’s alpha, on our planet honed to perfection over 4.5 billion years, for human performance and longevity to reap the benefits of nature’s excellence.

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The sign of a vibrant, innovative nation is its willingness to pursue the ever-unfolding discovery of nature's truth and reinvent itself continually against those proven new normalizations upstream. Let’s inspire the world with new rigors of excellence we first and successfully apply to ourselves.

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