From the Inside Flap
Finding Alpha offers a new approach to finding alpha, backed by current empirical evidence and grounded in the notion that risk and return are not necessarily correlated. Author Eric Falkenstein offers a serious criticism and counterproposal to current financial theory on risk and return that is comprehensive yet understandable to the average person. He argues convincingly for replacing the old assumptions with new ones, primarily replacing greed and introducing another factor—the innate human desire for hope and certainty. Falkenstein clearly shows that once one understands that "risk adjusting" returns, in the sense of adjusting for a priced risk factor, is a red herring, one can search for alpha more productively.
The author brings his theories down to earth with practical applications of alpha-seeking strategies that he developed through his own experience at Moody's Risk Management Services and with his own investment company. But ultimately, as the author shows, alpha is about finding a comparative advantage, both in the financial markets and in life. This means sticking to things you are good at, things you enjoy doing, because those are the things where making that extra effort is costless because it is something you like to do. That is the risk-taking that leads to greater returns. Maximizing your alpha should provide you with not merely a way to maximize your income, says Falkenstein, but also give you the greatest satisfaction, and the most meaning, in your life.