Alpha has many different meanings, but in the stock market, Alpha plays a very important and specific role 🙈
For a quick definition 💡Alpha = excess return on an investment
For now, you can think of Alpha like excess, surprise profits compared to something else, like a competitor stock 🤑
There’s a lot of metrics and money numbers out there, but today we’ll learn why Alpha is so important 🤩
1️⃣ Alpha can help investors identify stocks or funds that have performed better than the market average
2️⃣ Alpha is an important tool for evaluating a portfolio manager's skill in generating returns 🤔
The portfolio manager with the greater Alpha has greater returns 🤑
3️⃣ By analyzing a stock's alpha, investors can gain insights into how a company has performed relative to its peers or competitor stocks 🥊
4️⃣ Alpha can help investors identify which sectors or industries are outperforming the market
5️⃣ Alpha can also help investors identify undervalued stocks that have the potential for higher returns.
6️⃣ And finally, Alpha can be used to help diversify a portfolio by identifying stocks or funds that perform differently than the market.
Now you know the 6 core benefits of Alpha and why investors cherish this money number 😎
In the next lessons, we’ll learn how to calculate, interpret and invest using Alpha 👍
