Alpha and Beta.

"In the rarefied atmosphere of academic investment finance literature, alpha and beta define the two components of investment returns. In simple terms, beta measures market return such as that incurred from passive (index) investing. Alpha measures the value added (or subtracted) accruing from investor skill. Positive alpha is return generated in excess of a specific benchmark without taking more risk than the benchmark.

"For investors, finding managers who consistently can produce alpha is like the search for the Holy Grail . . .

"One benefit of alpha is that it is not highly correlated with beta."

"Even if the speculator ultimately makes money, they may not "win" in the context that they took on more risk than they should have to obtain the return."

From the August 2005 edition of Investment Update, a publication of Mellon Bank.

I have been reading this investment piece for many years. (I receive many of them each month from various banks, investment and brokerage houses.) Its author, H. Vernon Winters, is simply excellent. Lately, I see that he has been joined by a co-author, Christopher Sheldon, so Mr. Winters must be looking a retirement somewhere in the future. When that happens, it will be a pity for us laymen.