The elusive search for “True Alpha” has become harder given the complexities of the present day market dynamics. The concept of a clean and binary separation between alpha and beta, although intuitively appealing, is far too simple a paradigm for the complex realities of active investing. The postulation for alpha return streams remains potent but investors continuing the search for alpha often face heightened scepticism around both the presence of true alpha and an individual’s ability to identify it. In effect, the needle has gotten smaller while the haystack has gotten bigger.
True alpha calls for a better framework for the classification of investment skill particularly with regards to consistent alpha returns.True alpha is generally what most market participants mean when they are referring to “Alpha”. The rarest investment skill is structured with no known correlations to other returns. This is a superior skill or out-performance resulting solely from the active selection of securities that differ from the market. This kind of alpha is truly beating the market or outsmarting the competition, without embedded style tilts. Managers that generate sustainable repeatable true alpha are only a handful at any given time. Stock investors who do not take value, dividend, growth, capitalization or sector bets but still generate excess returns are generating true alpha. This form of alpha, the purest form is also the rarest. True alpha is harder to underwrite with confidence precisely because it so rare. True alpha must present empirical evidence of consistent historical out-performance. A heaping dose of sceptical scrutiny, scientific approach to evaluation and a clear theoretical framework can be helpful towards the task, of winnowing true alpha from the deep nonsense of short-term performance noise, luck and the never ending pitches of high-energy salesmen.
Successful Investing is not just about finding the next great Idea. On the contrary it is about looking for a place where the best trading concepts and insights can spring to life, enabling you to make entry, exit and trade management decisions, with ice in your veins. Unfortunately the one thing that most people fail to comprehend, is the trade-off between profit potential in the long term and the potential for short-term fluctuations and losses owing to inherent mispriced risks. It is not a crime to make a mistake in the investment business. But one has to realize the mistakes early and take decisive action to reverse the decision.
Trader Oracle’s resolute, entrepreneurial, straight-forward and unconventional approach with the application of Fusion Analytics is an innovative and successful footprint in this direction.The central purpose is to eliminate beta or systemic bias from our portfolio and focus towards alpha creation. Our meticulous attention to this process and subsequent reflection has assisted in tapering the unruly emotion from the tough investment process.Trader Oracle’s TOSI-50 Index encompasses about 50 uncorrelated alpha generators in its portfolio at any given time, which radically improves our return to risk ratio, generating consistent alpha.
Our coherent performance bear’s testimony at fuelling alpha creation for our clients. We have consistently out-performed the benchmark index for the last 7 years. Our team had successfully performed stress tests whilst studying the nature of deleveraging, predicting an excessive amount of debt with falling interest rates, prior to the 2008 global crisis. As such we immediately adapted to falling markets generating the highest alpha, for the preceding 7 years, at the peak of 2008 financial meltdown !