Subsequent Considerations Of A Successful Alpha Investment Process

By Author: Jamie Hanson
Total Articles: 3495
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After considering investment options, risk versus reward, and idea generation, it makes sense to evaluate the subsequent considerations of a successful alpha investment process. These include evaluating each company's funds, determining the type of position or investment, and eventually initiating a position and monitoring it. The following information will help you with these considerations.

Position
After evaluating the companies, it is important to determine the position of the company. You must determine if the company is suitable for a long position and appreciate in capital over time or if it will have a short position. The way to determine if you are considering a company that will have a long position is to see if the management team is entrepreneurial, if the revenue streams are recurring, and if there are considerable barriers to entry. The results of companies that fit this model are considerable and consistent. The predictability is important and it can take months to evaluate a company's position. Of course, to diversify your portfolio you will want companies that are not only long term holdings but ...
... a mix with short or midterm holdings, too. Remember, though, do not let short term holdings occupy a large percentage of your portfolio. Once you begin watching a company to see whether it is worth adding to your portfolio you will want to continue monitoring it so you know whether it is a good bet or not.

Position
When you make the decision to add a position it is important to determine where that position will fall in terms of the entire portfolio and the related market sector. You don't want to be too heavily exposed to the market so you want make sure your net exposure is not more than 50% so it is important to evaluate this. Continue monitoring your position after it has been initiated and make changes as necessary.

Risk Management
Remember, once you have added a position to your portfolio that does not mean your work is done. Not only do you need to continue monitoring the position but you also must manage the risk. Always look for changing variables and if you find them to have a negative impact then either trim the position or completely remove it from your portfolio. Knowing how to manage risk is incredibly important to a successful investor and any portfolio.

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.