The Most Important Thing Is … Adding Value
The Most Important Thing Is … Adding Value
This chapter shows another vital element needed for successful investing: adding value. Performing in line with the market in terms of risk and return is not hard. The trick is to do better than the market: to add value. This calls for superior investment skill. Every investor needs to strive for asymmetry—better performance on the upside than on the downside relative to what the investor’s style alone would produce. This chapter explains the concept of value-added investing by introducing two terms from investment theory: beta, a measure of a portfolio’s relative sensitivity to market movements, and alpha, which refers to personal investment skill, or the ability to generate performance that is unrelated to movement of the market. Comments and insights from four renowned investors and investment educators are included.
Keywords: value, investment skill, asymmetry, investment, beta, portfolio, alpha, performance, value-added investing
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