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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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Monday, May 12, 2008
RIM Introduces New BlackBerry
Associated Press
NEW YORK--Research In Motion Ltd. on Monday is introducing its first major new BlackBerry model in more than a year: the Bold, a high-end model that further demonstrates the company's desire to make tools for both work and play.
The Bold, or 9000, has twice the screen resolution of the current Curve model, making for a very sharp display. It matches the resolution, but not the size, of the screen on Apple Inc.'s iPhone (AAPL), which has emerged as a potent competitor in the "smart phone" category.
It also has much more internal memory, a glossy metallic look, and adds corporate-strength Wi-Fi capabilities to third-generation cellular and Bluetooth radios.
Otherwise it stays close to the formula of the Curve, with a horizontal screen above a trackball and a keyboard with one letter per key.
RIM BlackBerry Bold
Waterloo, Ontario-based RIM (RIMM) didn't announce a price for the Bold, nor agreements with specific carriers. It said the phone would be available from various carriers this summer.
The initial model would support GSM networks, the kind employed by AT&T Inc. (T) and T-Mobile USA. Later models could work on the Sprint Nextel Corp. (S) and Verizon Wireless (VZ) networks, according to RIM co-chief executive Mike Lazaridis.
Like the Curve and the Pearl, BlackBerry's consumer-oriented phones, the Bold has a full-size headset jack and a camera that can also capture video. At the same time, it has dual-band Wi-Fi, a feature previously only found on a model aimed at the corporate market.
The Bold will also have interchangeable back plates in different colors, a first for a BlackBerry.
RIM also was set to announce a $150 million fund that will invest in companies creating software for BlackBerrys and other mobile devices. The Royal Bank of Canada and Thomson Reuters are co-investors.
The BlackBerry Partners Fund will be managed by JLA Ventures and RBC Venture Partners.
The move echoes Apple's March announcement that it would set up a $100 million "iFund" for the development of iPhone and iPod Touch applications.
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