"Beating the Market has Become Nearly Impossible"
Original Article by Julie Segal of the Institutional Investor
In this extensive piece, Segal dives deep into how alpha has gotten much hard to find and if ultimately, getting returns above an index fund is impossible at this point. One of the reasons Segal finds is that everyone is at fault. According to author Charles Ellis, money managers over-promise, investment committees operate under bad structures, consultants want to protect their franchises, along with underpaid, understaffed institutional investors. In regards to why the aggregate amount of alpha, or risk-adjusted excess return, seems to be diminishing, investors keep dumping funds at the worst possible moment.
Looking back to the financial crisis a few years back, beating the market has become im possible due to the crisis' lingering effects. The crisis has forced the industry to rethink Modern Portfolio Theory.
Another reasons Segal found that investors fail in pursing alpha is the tendency to flock towards alternatives, despite the complexity of these products. It seems that investors are forgoing originality and copy what others are doing, without much thought. IN addition to this mistake is the idea of forecasting. Finding alpha is hard enough, but with market strategist always looking to forecast the market, something that is never easy, finding alpha only gets harder.