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We hope you find the articles on our blog informative and helpful. You are always welcome to chat with us if you have any questions about your personal financial situation.

Generating Alpha. What is it and Why is it Desirable?

When somone in the investment world refers to "generating alpha" or "beating alpha" they are referring to out-performing a given market indexes annual performance. Alpha is a performance indicator and a component of MPT (Modern Potfolio Theory). The objective of modern portfolio theory (MPT) which was developed in the 1950's is to find the best possible diversification strategies with the objective of achieving a greater expected return with a lower amount of risk. In order to do this it evaluates the following five risk variables:

  • alpha
  • beta
  • standard deviation
  • R-squared, and
  • Sharpe ratio.

The overall objective of MPT, as it has evolved, is for investors or rather investment managers/advisors to find a combination of non-correlated investments that have the best potential expected level of return for an appropriate level of risk. 

Investors want to be able to assess the level of performance vs. the risk they are taking. If an investor is taking outsized risk they will expect outsized performance in the event the investment performs as anticipated. If that is not the case, one would naturally have to assess whether taking outsized risk is worth it. 

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Why Navigating the Markets and Your Financial Future Require a Clear Head?

In a sea of constantly moving variables, navigating the markets (an art and science unto itself) and your financial future ( think taxation, IRA's, life insurance, pensions, other critical insurance, the amount needed for your retirement, estate planning) and the situation can be over-whelming. We cannot see the future, so at best we can imperfectly try to predict it based on historic data and patterns that can often repeat.

In order to successfully navigate and compute all of the above variables and potential changes so that you can both protect and maximize your financial future, you need an uncommonly clear head which comes from experience, expertise, knowledge and the ability to adapt. It's not unlike any profession. However, when it comes to your finances the wrong decisions can have an irreversible impact on your life and loved one's.

As a former airline pilot many years ago, you qickly learn there is no room for "error". The entire process from take-off to landing requires meticulous attention to detail and any flaws in judgement can have life and death implications. This training has served me well over the 28 years of my financial advisory career. We have a significant ammount of money under management for our clients and this alongside each families complex financial situation and requirements requires precise calculations, ongoing calibration and clear navigation.

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Why Moving Averages Are Simple But Powerful Indicators for Investors

Moving Averages are simple but powerful indcators for investors as they reflect a prevailing trend in the price of a stock, fund or indices, over the short, mid and long term. They can be used alone or in combination with technical analysis or Dow Theory, for example, to chart both primary trends and secondary counter cyclical trends.

There are two principal moving averages used by investors:

1. A Simple Moving Average is a historic weighted average price indicator for a stock, fund or market indices. The objective is to provide an average weighted indicator of the stock price that evens out daily or weekly fluctuations in price. A simple moving average takes the artihmetic "mean" of historic prices over a set period of time whether that is 9, 15, 20, 50, 100 or 200 or more days in the past.

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The Mainstream Media Can Help Investors, but Not Always in the Ways You Might Think

Is the mainstream media a voice you can trust when it comes to helping you manage your wealth? While you may see some good articles on occasion, by and large the mainstream media is there to shock and awe! it's important to remember that the mainstream media's primary objective is to get viewers attention. In order to do that, it needs to utilize copy for headlines that will grab people's attention. It's only business one could say. Sure, but this business can have a significant impact on people's emotions and when it comes to making decisions about matters that impact your finances, emotions can and do play a significant role in peoples decision making.

A neutral headline rarely get's people's attention. When stocks drop or rise significantly, the headlines will capture the mood of "elation" or "depression". The "Sky is falling" is typically the mood when the stock market drops significantly or, alternatively, the mood of "Everyone is making money like it is growing on trees" prevails when the stock market is rising or company "x" is going to go up for ever.

The above is a common default position of the media and while the content will of course be different in every case, the emotion of "fear" or "greed" is underlying the content depending on whether the market or a company is going up or down.

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What is BETA & It's Role in Risk Management?

Beta is a "relative" measure of volatility when measuring a stock or fund against a set market index, in this case the S&P 500. Whether the S&P 500 goes up 1%, 5% or 50% the S&P 500 has a constant Beta value of "1". So, "Beta" is a value assigned to a company based on how it performs over time compared to the S&P 500.

So, for example, if the price of Company A's stock - over a period of time - tends to go up by 2% each time the S&P goes up 1%, the Beta of Company A will be "2". Conversely, if the S&P 500 falls by 1%, Company A will decline by 2%. The higher a company's Beta value is, the more volatile the price deviations will be when compared to the S&P 500 percentile moves.

A company with a high beta value above "1" might describe a young promising but unproven company with high growth prospects. As the overall market goes up, it's value goes up by a multiple of the percentage move in the S&P 500.

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1600 South Main Street, Suite 190
Walnut Creek, CA 94596
Phone: 925-906-9800
Fax: 925-906-9884
info@hawleyadvisors.com

 

 

Hawley Advisors is an investment advisor, registered with the State of California. Any investment ideas or strategies on this website are for the purposes of education and general information only and should not be construed as specific investment advice. For more information about our firm please check the SEC Public Disclosure website: https://www.adviserinfo.sec.gov/

 

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