Initial Considerations Of A Successful Alpha Investment Process

By Author: Jamie Hanson
Total Articles: 3495
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A multifaceted process is used to identify, qualify, and position the companies that present potential investment opportunities. There are many phases incorporated into a successful Alpha generating investment process and research should be the basis of these phases. Some of the phases that must be considered include the vast world of potential investments, investment ideas, due diligence, risk versus reward, position, monitoring, initiation of the position, monitoring of the position, and ultimately trimming or eliminating the position.

Alpha Investment Options
A successful process for alpha generations starts with the universe of investable companies. Sector specialist analysts should be given a maximum of 25 companies to analyze. Intelligence will then be gathered by the analyst on the company. Some of this information includes evaluating competitors, customs, and vendors, conducting company visits, industry conferences, engaging in brainstorming sessions, and more. This information is an important starting point in order to determine any starting point.

Idea Generation and Due Diligence
The next ...
... step in a successful alpha investment process is generating ideas for investment. Due diligence is important during the idea generation process to ensure that the company is made of the right stock to offer a successful investment opportunity. Then, due diligence should be carried out on a daily basis, regardless of whether it is an investment yet or not.

Risk Versus Reward
Risk versus reward needs to be established before choosing an investment opportunity. Companies should be on a watch list to determine over time if the risk versus the reward will likely pay off. A position should not be initiated until research provides what price the company could potentially sell for and what the worst case price drop could be.

Alpha measures a portfolio's return that is in excess of the market return after both are adjusted for risk. Investors seeking higher alpha can consider long short mutual funds as part of their core portfolio holdings.