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Earn decent returns with positive-sum games - Alpha vs Beta

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Don't get into the hyper-competitive game of short-term trading, unless you're ready to spend 100% of your time on researching / maintaining your edge over everyone else. If you're not ready to do that, play the easy game of investing - which benefits everyone.

Beta

Invest into things that have intrinsic value for society, bear some risks, get paid for it.

Returns attributed to taking a “risk premium”.

  • Available for anyone.
  • Doesn’t require any kind of edge / advantage.
  • Positive sum game. You, and everyone else gains.
  • Long-lived. As long as the vehicle / market works, it’ll be available for everyone.

Beta can manifest itself in various ways:

  • Seeking yield (eg. buying bonds)
  • Value (eg. buying relatively cheap companies' stock)
  • Growth (eg. buying stocks that are on a good trajectory)
  • Selling insurance (reducing someone else’s exposure to volatility, by selling options)

You can get diversified Beta by buying an ETF tracking the S&P 500 index, or long-term European bonds.

Alpha

Forex / crypto bots, active fund managers forecasting macro trends.

Excess returns you gain over the market (Beta).

  • Only available to you.
  • Requires you to have an edge / advantage (information that’s not baked into the price already).
  • Zero-sum game. If you gain, somebody loses. (if there are fees, then it's a negative sum game)
  • Short-lived. As soon as the market finds about your edge, it’ll arbitrage it away.

As a retail (non-institutional) investor, your alpha (edge) sources are limited. Anything well-known is probably arbitraged away already (if it can be), by the time the info reaches you.

Alpha is like going to a prestigious college with the smartest of your peers to all compete for the same jobs. It’s the macho game, where your gains will be potentially very short-lived, and you may never know if you just delude yourself or you actually have an edge. “Excellent analouge by Mihir A. Desai”.

Some implicitly do this by investing based on their own opinions.