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A popular Wendy's commercial in the 80s made famous the question: "Where's the beef?" Good one. And here's an even better one: "Where's the alpha?" You might want to whip this one out the next time you meet with your portfolio manager.
Alpha is the over-and-above-the-expected return. It is the "value added." Therefore, it makes sense that a positive alpha means an investment has outperformed its market-predicted return, while a negative alpha would mean just the opposite. The expected return is calculated by a formula that takes into account the investment's level of unavoidable risk (aka beta).
Ever stepped into an elevator and after the doors close you become aware of an almost-suffocating scent coming from the woman next to you who must have bathed in perfume? Well, as you know, once the doors close you can't escape the smell until the ride is over. This is similar to beta, which is risk that can't be reduced or diversified away. A measure of "systematic" or market related risk, beta is used as a measure relative to a certain index -- such as the S&P 500.
So, for example, let¿s say your portfolio is managed to compete against the S&P 500. If you generate a better return than the index while not taking on added risk (standard deviation of returns) then you get alpha. Low beta means the market-related risk is low and vice versa for high beta.
Another example, let's say a mutual fund or stock has a beta of 1.5 relative to the S&
P500 ¿ that means it is 1.5 times as risky. So, over time, if the S&P 500 goes up 1%, your portfolio should be up 1.5%
plus (one can hope) some percentage of alpha. If the S&P 500 is down 1%, your portfolio should be down 1.5%.
Alpha
and beta are based off of linear regression of a set of data. Warning: this may cause a high school fifth-period flashback,
but it will be over before you know it:
The equation for a line is Y = a + bX.
a = alpha (the Y intercept - the added
value)
b = Beta (the coefficient you multiply X by)
X = S&P 500 (in this case)
Y = your portfolio
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Tuesday, May 13, 2008
IAC and Liberty Media Resolve Legal Dispute
Comtex
ENGLEWOOD, Colo. and NEW YORK, May 13, 2008 /PRNewswire-FirstCall via COMTEX News Network/ ----Liberty Media Corporation (Nasdaq: LINTA, LMDIA, LCAPA) ("Liberty") and IAC (Nasdaq: IACI) announced today that they have resolved their legal dispute regarding IAC's proposed restructuring.
Liberty has agreed to drop its appeal of the decision handed down by the Delaware Chancery Court on March 28, 2008 and will not oppose the proposed single-tier spin-offs of HSN, Interval International, Ticketmaster and Lending Tree, which IAC advanced earlier today by making its initial filings with the SEC.
Additionally, the companies agreed on a number of arrangements regarding the governance of the spun off companies, including Liberty's right to board representation on each company and a standstill agreement that limits Liberty's ability to increase its ownership stakes and to take a variety of other actions with respect to the spun off companies.
Further details of the arrangement between IAC and Liberty are set forth in filings the companies make with the Securities and Exchange Commission.
IAC Chairman and Chief Executive Officer Barry Diller stated, "Now it's really over and that's great for both of us."
Liberty Chairman John Malone said, "I am pleased that we were able to amicably resolve our dispute with IAC. Liberty supports the proposed restructuring of IAC and looks forward to the ongoing success of each of the new entities and IAC."
About Liberty Media Corporation
Liberty Media Corporation owns interests in a broad range of electronic retailing, media, communications and entertainment businesses. Those interests are attributed to three tracking stock groups: (1) the Liberty Interactive group, which includes Liberty's interests in QVC.com, Provide Commerce, Backcountry.com, BUYSEASONS, Bodybuilding.com, IAC/InterActiveCorp, and Expedia, (2) the Liberty Entertainment Group, which includes Liberty's interests in the DIRECTV Group, Inc., Starz Entertainment, FUN Technologies, Inc., GSN, LLC, WildBlue Communications, Inc., and Liberty Sports Holdings LLC, and (3) the Liberty Capital group, which includes all businesses, assets and liabilities not attributed to the Interactive Group or the Entertainment Group including our subsidiaries Starz Media, LLC, Atlanta National League Baseball Club, Inc., and TruePosition, Inc., and minority equity investments in Time Warner Inc. and Sprint Nextel Corporation.
About IAC
IAC is an interactive conglomerate operating more than 60 diversified brands in sectors being transformed by the internet, online and offline... our mission is to harness the power of interactivity to make daily life easier and more productive for people all over the world. To learn more about IAC please visit http://iac.com.
Contact: IAC Investor Relations Liberty Media Eoin Ryan John Orr (212) 314-7400 (720) 875-5622 IAC Corporate Communications Stacy Simpson (212) 314-7470
SOURCE IAC
http://www.iac.com/
Copyright (C) 2008 PR Newswire. All rights reserved
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