By Chris Holt
Today marks the dawn of a second decade for this venerable blog. AllAboutAlpha published its first article almost exactly 10 years ago today, on July 4, 2016. Since then, this website has published an article a day for 2,600 consecutive business days. That’s about 1.3 million words read nearly 2 million times by readers in more than 390 countries. (Okay, maybe there aren’t 390 countries, but the rest of this is a true story.)
With its low barriers to entry, the mantra of the Blogosphere might as well be “easy-come/easy-go.” Yet AllAboutAlpha.com remained through it all. Why? Does it have access to the best information, the deepest pockets, the most advanced technology? No way. AllAboutAlpha has survived this long by looking under the hood of investment fads to identify the fundamental developments shaking the asset management industry. Although the stories have changed, those fundamentals have stayed the same. I should know. I wrote that first post back on Tuesday, July 4, 2006.
Back in 2006, you needed to hire a bunch of techies to build a website. But a free tool called WordPress was starting to catch on that promised to allow average citizens to publicly pontificate and vent to their hearts’ content. You know the old adage “Dance like no one is watching? Yeah? Well, I wrote blog posts like no one was reading. Except it was true. No one was reading. At least not at first. According to Google Analytics, the first reader of AllAboutAlpha was some dude in Israel who was either very bored or was actually looking for information all about Beit Alfa, the sixth century synagogue in the Gilboa mountains in northern Israel. Or maybe it was just an automated ‘bot’ coming for a sniff. Whatever. We had our first reader!
Here’s a screenshot of the site around then. Pretty, well, hideous. I know. But that’s what all blogs looked like at the time. (Note to blogging nerds: We were using Wordpress 2.0 back then. That’s like 30 versions behind the current one and was only the sixth version of Wordpress ever released.)
Back then, most bloggers didn’t like using their real name. I guess it was a throwback to when blogs were basically just extensions of the comment sections of mainstream media websites – you know, the kind of place where people call themselves “KashKow34”, “WarrenBuffettsGardener”, “BermudaShorts” or whatever the heck popped into their mind after they dealt an online haymaker followed by a flurry to the solar plexus to some unsuspecting online journalist.
Of course, I had no intention to make enemies, but I needed a nom de guerre like the rest of them. It would be “Alpha Male”! The story of Alpha Male begins much like the story of Spiderman really - except I wasn’t bitten by a radioactive spider while working late in my lab one night, and I had no super powers, or a costume. So maybe it wasn’t at all like Spiderman actually. In reality, my wife suggested it sarcastically one day in a failed attempt to get me to put down the keyboard. But who cares? Alpha Male was born!
In any event, let’s go back to July 4th, 2016. The original idea behind AllAboutAlpha was to explore the separation of alpha and beta as two distinction asset classes (ETFs vs. hedge funds), as a portfolio construction strategy (as portable alpha), or as a retail active management strategy (in the form of 130/30 funds.
Here’s an excerpt from that first post. Note the use of the term “web log” (Web log? Yikes!)
July 4, 2006
Chronicle of a Paradigm Shift in Financial Services
The money management industry, from mutual funds to financial advisors, to investment newsletter authors, exist for essentially one reason: a belief that it’s possible to “beat the market” (or more accurately, beat the benchmark). Billions of dollars in management and advisory fees are predicated on the notion that research, skill, and wisdom can achieve higher returns than a monkey throwing darts at the stock and mutual fund pages of the Wall Street Journal.
The money management industry exists to create alpha. Much has been written about alpha, active alpha, portable alpha and alpha overlays. In general, alpha/beta separation has been described as a “new paradigm” in investment management - even as “a revolution in investment management…like 1935, when people knew that the current macroeconomic thinking didn’t work and then Keynes published his General Theory. The separation of alpha and beta is similarly powerful.”
The web is full of information on the hedge fund industry. But in my own research, I have found few websites that take a comprehensive and holistic view of alpha, tying it all together into a story we can all understand. As an executive with a hedge fund firm, I was constantly asked for information on these concepts – case studies, articles, white papers etc. This web log is designed to provide a jumping-off point for institutions and individual investors and represents my personal collection of links and sources that I believe you may find helpful.
Naturally, submissions of original work or references to other online material (and other blogs) are more than welcome and will ensure this web log remains a valuable research source. Finally, although this site is meant to act as an “alpha portal”, comments on various articles are welcomed and would be appreciated by other users.
I was a pretty simple goal really. About a year later, this idea was distilled into something I called “Our View” (I guess I was using the “royal we” at that time. I dunno.). This view motivated AllAboutAlpha back then, and it continued to motivate AllAboutAlpha under its new owners, the CAIA Association, after it acquired the site in 2009. It was also the view I later expressed in a July 6, 2006 post and in an op-ed for Institutional Investor magazine in January 2011 and in this book chapter.
Our View…of the asset management industry
Industries change incrementally as business processes improve. For example, asset management has become more efficient through scale, operational improvements and marketing acumen over the past 40 years. However, the basic business model has remained the same.
But occasionally, new technologies disrupt this pattern and lay the foundation for a fundamental re-organization of industry value propositions. These “disruptive technologies” often disintermediate existing value propositions and enable customers to purchase a la carte, assembling totally customized products. The Internet is one such technology. It disaggregated traditional value propositions and allowed buyers to assemble customized offerings on their own.
Hedge funds and liquid beta instruments such as ETFs are also “disruptive technologies.” As refined sources of alpha and beta, they amount to “off-the-shelf” components that allow investors to assemble their own portfolios rather than buying what amount to “pre-packaged” alpha/beta combinations offered by mutual fund companies.
As a result, they have focused investors on alpha and shone a harsh light on the growing problem of index hugging in active management (and similarly, the problem of “alternative beta” in hedge funds).
Hedge funds, portable alpha, ETFs, “1X0/X0”, active overlays, hedge fund replication… At the core of all these emerging ideas is alpha/beta separation.
This is the alpha-centric prism through which we see the world.
That’s still the alpha-centric prism through which AllAboutAlpha – and CAIA – sees the world. So join me in raising a glass (it’s 5 o’clock somewhere) to the hundreds of people from Alpha Male to the current lineup of investment thought leaders to the various tech and marketing folks at the CAIA Association to the next decade of tumult in the global asset management industry.
Cheers!
- Alpha Male, July 6, 2016