Successful Portfolios LLc Advisor at Interactive Brokers
In his influential book, A Random Walk Down Wall Street, Burton Malkiel makes his case for efficient market theory and passive investing all while excoriating technical analysis through a straw man argument. About Beta, he writes, “Beta looks suspiciously like a tool of technical analysis in academic drag – a bastard cousin of the technician’s charts”. We believe beta looks like technical analysis because it is technical analysis as is, by extension, alpha. To whit, alpha and beta estimates can be derived solely from the historical price action of securities and indices. Moreover, alpha and beta are indicators that can be effectively analyzed by charts. Most importantly, it is apparent to us that alpha in particular has useful predictive properties for securities selection and portfolio construction.
