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The Quest for Alpha: The Holy Grail of Investing Hardcover – February 8, 2011


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Product Details

  • Hardcover: 208 pages
  • Publisher: Bloomberg Press; 1 edition (February 8, 2011)
  • Language: English
  • ISBN-10: 0470926546
  • ISBN-13: 978-0470926543
  • Product Dimensions: 8.8 x 5.8 x 0.8 inches
  • Shipping Weight: 12.8 ounces (View shipping rates and policies)
  • Average Customer Review: 4.7 out of 5 stars  See all reviews (28 customer reviews)
  • Amazon Best Sellers Rank: #697,988 in Books (See Top 100 in Books)

Editorial Reviews

Review

“As I noted recently, success in investing is somewhat counterintuitive, and requires most investors to set aside their pre-conceived notions of how to build a portfolio that will allow them to reach their goals. The task is made all the harder because the vast majority of the participants in the financial services industry spend hundreds of millions of dollars annually reinforcing the myth of active management. Fortunately for investors, experts like Larry Swedroe are hard at work pointing out the fallacies of those myths, while also detailing the undeniable logic and mathematics that underpin a passive approach. The Quest for Alpha is a wonderful addition to that effort, and investors will be well-rewarded by reading it and acting upon its wisdom.”
— Nathan Hale, moneywatch.com, March 2011

From the Inside Flap

King Arthur and his court pursued the Holy Grail, the mythical cup or dish used by Jesus at the Last Supper.The financial equivalent of the pursuit of the Holy Grail is the quest for the money managers who will deliver alpha—returns above the appropriate risk-adjusted benchmark. The quest for alpha is based on the theory that the markets are inefficient, and smart people working diligently can discover pricing errors the market makes. But there is a competing theory based on about sixty years of academic research. Its premise is that markets are highly efficient—the market price of a security is the best estimate of the right price. If markets are highly efficient, efforts to outperform are unlikely to prove productive after the expenses of the efforts. So which theory is correct?

In The Quest for Alpha, Larry Swedroe presents research, data, and advice from some legendary market gurus to show that it is extremely difficult to outperform the market. Examining the evidence from academic studies on mutual funds, pension plans, hedge funds, private equity/venture capital, individual investors, and behavioral finance, he demonstrates that the markets are indeed highly efficient. Swedroe then explains why investors should instead focus on asset allocation, fund construction, costs, tax efficiency, and the building of a globally diversified portfolio that minimizes, if not eliminates, the taking of idiosyncratic, uncompensated risks.

And to those who ask, "But how do you explain Warren Buffett?" Swedroe's answer is simple. "I tell them if they see Warren Buffett when they look in the mirror, go ahead and seek the holy grail of alpha," he says. "If they don't, give up the quest and play the winner's game."


More About the Author

Larry Swedroe is principal and director of research for Buckingham Asset Management, LLC, a Registered Investment Advisor firm in St. Louis, Mo. He is also principal of BAM Advisor Services, LLC, a service provider to investment advisors across the country, most of whom are affiliated with CPA firms. Previously, Larry was vice chairman of Prudential Home Mortgage. Larry holds an MBA in finance and investment from NYU, and a bachelor's degree in finance from Baruch College.

Customer Reviews

4.7 out of 5 stars
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He said it was good reading..easy to comprehend and understand..
SUE ACKERMAN
I've read several books by Larry Swedroe and have found them all to be very valuable, in the same class as John Bogle, Rick Ferri and William Berstein.
Gene Herritz
Investors would be well served to read this book and heed Larry's advice.
Matthew J. Rice

Most Helpful Customer Reviews

28 of 28 people found the following review helpful By Terry I. on June 4, 2011
Format: Hardcover Verified Purchase
The Quest for Alpha presents a thorough and convincing viewpoint that passive management is preferable to active management. Mission accomplished. However, much of this was presented in previous books by the author and I did not find a new book on that subject to be that valuable. I have no dispute with the premise, examples and conclusions. If your only reason for studying this book is to make a decision on passive versus active investing, then this book deserves 5 stars.

However, I was hoping for some updated information in how to proceed creating an investment portfolio, and this book did not satisfy that need. It does not address evaluating when a passive approach might not provide exposure to the market segment you want.

Previous books by Swedroe, specifically Winning Bond Strategy(2006) and Winning Investment Strategy(2005) are much better but now getting a little dated for the current investment climate. I was hoping for some updated guidelines on asset allocation for equity and fixed income investments. However, in the absence of an update, these books are the best I have come across and I recommend them highly. For instance, Winning Investment Strategy takes the asset allocation for equities a step further than most sources and delves into the allocation for small and large capitalization equities, including value vs growth equities. It also includes allocations for international equities, emerging markets, and REITs. Winning Bond Strategy is not as useful because it does not include specific recommendations for the investments in a fixed income portion of a portfolio, but it still provides a good explanation of the various options.
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30 of 32 people found the following review helpful By Philip Stein on April 3, 2011
Format: Hardcover
Beginning with the Cowles Commission in the early 1930s, academics have been searching for ways to identify money managers who could persistently generate above-market returns. Eighty years have passed and they are still searching. In fact, many have concluded that market-beating managers are about as common as four-leaf clovers, and the very few who do succeed cannot be identified in advance. With the advent of the Efficient Market Hypothesis in the 1960s, emphasis shifted to understanding why the market is so hard to beat. This research has provided the intellectual foundation for passive investing.

In his new book, "The Quest for Alpha", author Larry Swedroe highlights many studies performed over the past several decades which overwhelmingly reach the same conclusion: returns in excess of market averages (alpha), net of expenses, are exceedingly difficult to achieve over long periods of time, and any attempts to beat the market will likely result in disappointment. It is hard not to draw the same conclusion yourself after reading this book. Apparently, researchers have not found evidence of skilled alpha-generating managers after studying mutual funds, pension plans, private equity/venture capital, and, yes, hedge funds. Mr. Swedroe admonishes us to not become too enamored with the mystique of hedge funds. Hedge fund performance is reported voluntarily and it is not likely that funds destined for extinction will bother reporting sub-par returns. This makes data on hedge fund performance exceedingly biased. Yet in spite of this bias, the long-term return of the average hedge fund is still nothing to write home about.
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18 of 21 people found the following review helpful By Mark W. Cooper on January 30, 2011
Format: Kindle Edition Verified Purchase
First of all; I am a Larry Swedroe fan. I have read every one of his books and follow his blog. I believe he is one of the top financial/investing writers for the small investor. I refer to his prior book "The Only Guide to Alternative Investments" on a regular basis.
If you have read some of his prior books, this is a re-hash of his general principles of investing... know the risks of your investments, financial and economic predictions are bunk, costs matter.
If you haven't read his prior books, a nice review of the financial industry; how investor psychology leads us astray. Fun to read. If you want specific investing advice, look at some his other publications.
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7 of 9 people found the following review helpful By E. Hoopes on February 17, 2011
Format: Hardcover
I trade for my own account and have read dozens of investment books. I like this book and recommend it for folks like me.

The basic thesis of this book - getting Alpha to be consistently positive is very difficult. The mutual fund industry and the newsletter writers must be hoping that no one reads this. Fortunately for them virtually no ordinary investor knows the definition of alpha. I would have given it a title so the average guy could get an idea about what was inside.

It would have been nice to include some actual investable funds (ETFs) as examples in Chapter 10. Some of the indexes are easy like the SP500 where you would use the ETF SPY - others draw a blank for me. I doubt that any individual could duplicate the "Barclays Capital Intermediate Gov't/Credit Bond Index which is 40% of Portfolio #4.

Maybe this is nit-picking. Anyway I enjoyed the book and recommend for folks managing their own money.
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7 of 9 people found the following review helpful By Dave P on February 6, 2011
Format: Kindle Edition
Like others I have read most all of Larry's books and enjoy them all. I agree that there is nothing really new here compared to his other books, but it is an outstanding compilation of information supporting the case for passive investing in the presence of highly efficient markets. My favorite quality of the book is that all my favorite quotes, stories, aphorisms about investing are woven into the book to create a truly enjoyable read. The book is full of quotes from professionals and academics. After showing the futility of beating the market by showing us that mutual funds, pension plans, and hedge funds cant do it, the book turns to the relatively new field of behavioral finance to show us that the biggest enemy to our investing success is likely in the mirror.
He then shows what the winning strategy is with passive investing, tax loss harvesting, rebalancing. He clearly shows that indexing / passive investing is not at all settling for average. It is the way smart money invests and is superior. Larry's book is a truly enjoyable and important read for anyone interested in improving their financial future.
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