Tired of not understanding what makes some stocks better than others? 👀
Alpha is the key to comparing stocks to industry averages and even other competitor stocks 💪
💡Alpha = a measure of an investment's excess return compared to its benchmark index, adjusted for the risk taken.
📝 The benchmark is often the S&P500.
📝Risk taken is often the cost of purchasing the stock in the first place
Alpha exists in outside of the stock market too 🌍
Think of Alpha as a football team's performance compared to the league average 🤔🏈
If a team scores more goals than the average team, it has a positive Alpha 🏆
If the team scores fewer goals than the average team, it has a negative Alpha 😥
Let’s take Alpha back to the stock market now 🧮
Let's say the S&P 500 has a return of 10% over a year, and Stock A has a return of 12% 🤑
If Stock A's benchmark is the S&P 500, its Alpha is 2%, meaning that it outperformed the avg. market by 2% 💰
On the other hand, if Stock B has a return of 8% over the same period, its Alpha is -2%, indicating that it underperformed the market by 2%. 😥
Alpha is not a guarantee of future performance and should not be the only metric used to evaluate a stock or portfolio 🧠
Still, understanding Alpha is key for investors who want to make informed investment decisions and potentially achieve higher returns 💰
By using Alpha as a tool, investors can easily identify stocks that have performed better than average in the past and make better decisions for the future 🚀
