The excess return of an investment above what would be predicted by its exposure to market risk (beta) — the value added by active management or security selection.
Deeper Explanation
Alpha is zero-sum at the aggregate market level: for every investor generating positive alpha, another must generate negative alpha. This is why the majority of active funds underperform their benchmark over long periods after fees — they are paying for the attempt to generate alpha but collectively cannot. Genuine, persistent alpha comes from one of three sources: informational edge (knowing something others don't), analytical edge (interpreting information better), or behavioural edge (acting more rationally than others at critical moments. Marks identifies the behavioural edge as the most durable and accessible for disciplined individual investors.
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