Searching for Alpha
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Searching for Alpha

The Quest for Exceptional Investment Performance

Ben Warwick
Wiley, 2000
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Editorial Rating

9

Qualities

  • Innovative
  • Applicable

Recommendation

By turns technical, analytical and anecdotal, Ben Warwick’s expert investment guide takes you on a whirlwind tour of modern investment theory and practice. Accessible enough to reward dabblers in the field, this book at the same time raises serious issues and attempts to, if not explain them completely, at least point you down the path to financial enlightenment. Abstract or downright abstruse concepts are generously illuminated by side trips into the worlds of one-armed oil wildcatters, Beethoven, Dom Perignon and the mathematician who managed to stop Napoleon’s invading armies. getabstract recommends this book as one of the finest overviews of financial theory, technique and practice ever to grace our library’s shelves.

Summary

The Equation that Changed the Investment World

For all practical purposes, the modern investment world was born when Henry Markowitz, a student at the University of Chicago, challenged then-accepted theories in his doctoral dissertation. Starting with John Burr Williams’ 1937 Theory of Investment Value, Markowitz came to some startling conclusions. The definitive market theory at the time came from Williams, who said the wise investor should buy only securities that trade at a price far below their true value, hold them and profit from a steadily rising dividend stream as the companies begin to prosper. Markowitz differed. He told investors to be as concerned with risk as with return. He developed a way to quantify risk and to differentiate the portion of return that represents a manager’s skill from the portion that represents the market’s direction. This value-added component of the total profit came to be called "alpha."

Markowitz developed the portfolio concept, emphasizing buying groups of securities instead of picking stocks. He thought the rational investor would rather maximize expected utility (return in relation to risk tolerance) than maximize return with...

About the Author

Ben Warwick  is a principal of The Bornhoft Investment Group, a registered investment advisor specializing in alternative investments, and of Warwick Capital Management, a quantitative trading firm. He holds his B.S. in Chemical Engineering from the University of Florida and an M.B.A. from the University of North Carolina, and has authored three previous books on finance and investing. A resident of Denver, Colorado, he is the Market View columnist for worldyinvestor.com, a financial Web site.

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