An Inconvenient Truth - Alpha Financial Styles Beget Ginormous Returns

Apologies to Al Gore for another inconvenient truth.

There’s been a lot of talk about alpha these days, but not just about investments. Trump, Putin - alpha is definitely in vogue. As in alpha male. Like Tarzan. Does that tell us something about the investing world?

Yep it does. Check out my book The Three Financial Styles of Very Successful Leaders (McGraw-Hill 2005) which sets out the financial styles of the most successful CEOs. It also sets out the particular financial styles and traits (we call it the financial signature®) of the financial alphas; we call them Marketmakers. These are the Tarzans of the financial world. Elon Musk, Bill Gates, Larry Ellison, Martha Stewart, Leona Helmsley, you get the drift.

The idea is that if you want to predict the financial alphas – the true business greats who make billions on their own - , you’Dgot to identify alpha financial styles. That’s what my book does. And in the course of doing all this we constructed assessments which can identify these financial alphas. That’s the basis of our cognitive alpha™ leadership programs – programs to identify financial alphas (and betas too it might be said). All based on my own flavor of behavioral finance, thank you.

Deep in the bowels of every organization there are also financial alphas; it’s just that they usually get out of Dodge and do it on their own rather than stick around the bureaucrats. Wouldn’t it be nice to know who they are?

Of course if you can identify the financial alphas, you can also identify the betas and deltas and so on. If you know what the management teams of a company is composed of in terms of their financial Tarzan-esqueness, you’ve got a nifty way of predicting how well it will do financially, and thus how well its company will do. Oh yes, an alternative way of predicting investment outcomes. What an idea.

That’s the basis of our cognitive alpha™ investment services. So simple it should already have been invented already. But the investing world is based on and around financial rather than cognitive metrics so the message has still passed it by.

We are now in a world which we can term the end of alpha. Hedge funds don’t work anymore and index funds and ETFs are the new tools of choice for investors. But this definitely isn’t Tarzan stuff; no financial alphas here. Instead this is the investing world of weaklings and wimps that have decided that they haven’t enough imagination to figure out how to beat the averages. This is a world that has given up any investing mojo.

So what’s so inconvenient about alpha financial styles predicting alpha investments? Isn’t that cool?

Well firstly, not if you’re an index or ETF guy. It’s all about the averages see? What has behavior got to do with successful companies and investments anyway?

Secondly, not if you’re an MBA or analyst. You go by the numbers (i.e. historical financials) not by behaviors. Behaviors are soft and squishy and in any case analysts and MBAs don’t understand them. So they all ignore them. So how do you predict who the financial alphas are? After they’ve done it of course dummy!

Is it any wonder that modern investing doesn’t work? That’s it’s reduced itself to the lowest common denominator of index investing? When will analysts and investing types get some courage and imagination and figure out that financial alphas – fortunately or otherwise – make the world go around, just like the Tarzan alphas in the real world like Trump and Putin – for better or much much worse?

Until analysts, academics and Wall Street guys realize all this, alpha is going to have to be expunged from our investment vocabulary.

Not with a bang but a whimper.

That’s the way the (Alpha investing) world ends.