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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
Returns above what the market delivers. Positive alpha = beating the market.
Why It Matters
Alpha is the holy grail of investing - returns you earned through skill, not just by riding the market. If the market returned 10% and your portfolio returned 12%, you generated 2% alpha. Most fund managers can't consistently generate alpha - that's why low-cost index funds beat most active funds. Hedge funds charge huge fees promising alpha.
Key Points
- Positive alpha = outperforming; negative alpha = underperforming the benchmark
- After fees, 80-90% of actively managed funds deliver negative alpha over time
- 'Seeking alpha' is the goal of active investing - but it's extremely hard to do consistently
Related Terms
Common Questions
Returns above what the market delivers. Positive alpha = beating the market. Alpha is the holy grail of investing - returns you earned through skill, not just by riding the market. If the market returned 10% and your portfolio returned 12%, you generated 2% alpha.
Alpha is the holy grail of investing - returns you earned through skill, not just by riding the market. If the market returned 10% and your portfolio returned 12%, you generated 2% alpha. Most fund managers can't consistently generate alpha - that's why low-cost index funds beat most active funds. Hedge funds charge huge fees promising alpha.
Positive alpha = outperforming; negative alpha = underperforming the benchmark
After fees, 80-90% of actively managed funds deliver negative alpha over time
'Seeking alpha' is the goal of active investing - but it's extremely hard to do consistently