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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
Home / Personal Finance / Financial Planning / Family & Estates
Thursday, October 25, 2007
More States Are Privatizing Child-Protection Services
Donna Fuscaldo
FOXBusiness
New York --Would private organizations do a better job of protecting the nation’s children?
On Wednesday, the Child’s Advocate
Office blamed New Jersey for failing (again) four children who died last year while under the supervision of the state child
welfare agency. The office said the problems that led to the failures still exist today. But are these problems fixable –
or should the program be scrapped altogether and left up to the corporate arena?
Privatization of child welfare systems
isn’t happening all over the country, but some states (such as Florida and Kansas) have put the responsibility in the hands
of private organizations. Advocates of privatizing the mission contend non-government agencies are better equipped to handle
the workload and follow-through needed to protect the most vulnerable children.
“When you look at the long-term outcome
for the number of adoptions and the number of children in care visited, those kinds of thing have certainly improved,’’ said
Rachel Fasciani, legislative affairs and community outreach liaison at Our Kids of Miami-Dade/Monroe, the non-profit that
was awarded the child welfare contract there in 2005. That district has roughly 5,000 children and young adults.
Supporters
of privatizing child welfare argue state agencies are overworked and have too few caseworkers to actually address all needs
and follow through with help.
While a non-government agency such as Our Kids will have fewer than 25 cases per caseworker,
state welfare agencies typically have double that amount. Supporters say non-government employees have more time to visit
with children and work with parents to get them into therapy or parenting classes, if need be.
“Privatization makes
who is responsible for the outcome of the children more clear,’’ said Lisa Snell, director of education and child welfare
at Reason Foundation. “It forces the states, counties and the providers to make more explicit what should happen to the children.”
According
to Snell, private contractors in Kansas and Florida are doing a good job of finding permanent placement for children because
they are held accountable (their job depends on it) for the wellbeing of the children. She said privatization enables the
government to move away from being the provider to being the watchdog.
“It’s hard to monitor yourself,’’ said Snell.
States and counties across the nation are starting to replicate what’s happening in Florida and Kansas, she said.
But
not every child advocate is for privatizing child welfare. After all some say it’s such a massive undertaking, one in which
there needs to be a good system of checks and balances.
“To take the CPS (child protection services) role is huge,’’
said Betsi Sanchez, program director at Child Advocates. “There has to be accountability.”
Sanchez is apprehensive
that privatizing is the answer. San Antonio, Texas, which launched a pilot program for privatizing child welfare, had
to go back to the drawing board, said Sanchez.
“It’s too complicated and too complex,’’ she said.
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