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"How cheap can I buy gold?" and "Is gold safe?" are two of the most frequent questions gold brokers get. As a former gold broker, I know. After talking to thousands of potential gold buyers, and after spending 24 years in and around the equities markets, I have written an answer to the question everyone wants to know - Is Gold Safe?
While alpha is a wonderful calculation that allows investment managers to determine whether or not a specific risk was worthwhile, there are some potential problems. Before using alpha to help manage risk in your portfolio make sure you understand its limitations and any potential problems that could crop up.
Alpha has not been around forever and it actually only came into existence during the middle of the 20th century because investment managers were not as successful as they should have been. That meant there was something else going on that investment managers were not taking into consideration with their investments.
If you are involved in your investments then you need to know what Alpha is and how it can help you manage risk. Beta, R Squared, and the Standard Deviation allow investors to measure the risk that volatility in the market creates.
One of the most important things for your portfolio is knowing how to manage risk. Alpha can help you do that, along with other important statistical calculations. However, you must be willing to always monitor any position and evaluate whether risks taken pay off or not. Alpha will help an investor see what risks worked and made the fund money as well as the risks that didn't work and lost the fund money. Managing the risk is important and will allow your fund to grow and prosper. However, you need to know how to manage risk and Alpha is an important part of that.
When it comes to investing the biggest favor you can do for yourself is know how to evaluate risk, when to let a position go, and how to determine if a fund or investment is performing below or above its benchmark. If you have no idea how to do any of this then the money you have invested is at serious risk.
If you are interested in making as much money as you can off your investments then you will want to learn as much as possible about alpha and risk management. Of course, you can't just stop with alpha and assume that you will be able to measure any fund's level of risk and its performance as compared to the market as a whole.
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