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Alpha Theory Blog - News and Insights

« February 2009 | Main | May 2009 »

3 posts from April 2009

April 28, 2009

Rich States, Poor States - 2009 State Competitiveness Report

This is a special guest post by Dr. Arthur Laffer, Economic Adviser to President Ronald Reagan.

Arthur Laffer


The fiscal condition of the states has worsened dramatically. With 2009 legislative sessions currently underway, there is now little or no room for states to “paper over” budget problems. With rainy day funds at near all time lows, the tough decisions state legislatures faced in 2008 will be even more pronounced in 2009 as states are forced to confront ongoing structural budget deficits that continue into FY2010 and beyond. As detailed by the 2009 ALEC-Laffer State Competitiveness Index,how each state responds to these budgetary challenges will determine which meet with enviable success and which encounter disappointing results.


View 2009 State Competitiveness Report (8MB PDF)


April 22, 2009

Building a Better Beta: Not all Beta is created equal

Most investors understand the concept of Beta, but do not appreciate that all Betas are not created equal.  We'll start with a little Beta primer.  Let's say you have two stocks, Huntington Banc (HBAN) and Invesco (IVZ), which both have a Beta of approximately 2. If the market moves 1% you would expect HBAN and IVZ to move 2%.  Investors that are trying to dampen market sensitivity may Beta adjust by multiplying the actual position size (for example we'll say 3% current positions for both HBAN and IVZ) by the Beta to get a Beta adjusted position size of 6%.  Here is the issue, investors assume 6% position size for both assets to make portfolio management decisions, but only about 50% of the movement of HBAN is explained by its Beta (measured by correlation), while over 80% of IVZs change is explained by market movement.  They are simply not the same and should not be treated as such.

Continue reading "Building a Better Beta: Not all Beta is created equal" »

April 3, 2009

Grantham's Great Investor Attributes

After reading Jeremy Grantham of GMO’s most recent letters, I see that there are several attributes of Mr. Grantham that I admire and think are common amongst other great investors:

1.     Willingness to say “I don’t know.”  Jeremy Grantham has great insight on a vast amount of financial market topics, but he is quick to say, “I don’t know”, when the certainty of his conclusions are low.  Great investors all readily admit their own limitations.  Certainly, they know a lot, but they are very aware of what they do not know as well.  (Quote from Grantham letter - "As for commodities, who knows?  There were a few months where they looked like a high-confidence short, but now they are half-price or less, and are much lower confidence bets.  In currencies, we know even less.  It is easy to find currencies to dislike, and hard to find ones to like.  There are no high-confidence bets, in our opinion.")

Continue reading "Grantham's Great Investor Attributes" »