10/31/10 Seeking Alpha? Look Within

Where does one find 'alpha?' Most likely within. Seeking to replicate someone else's trading results (as someone recently pointed out) is virtually impossible.

A strategy that delivers gains beyond a risk-adjusted benchmark is pretty hard to come by. Even when we 'find' one, success can be fleeting.

My wife and I are now about -10% below our combined portfolio high of September 2008. Recovery from the March '09 lows was basically a one-step process- pedal to the metal trading using leveraged 3x ETFs until mid-May 2009 surprised us with 70-80%+ returns over less than three months. That was followed by an endless series of fender benders as we shorted against the prevailing trend. Frustrating, but invaluable practice (wax on/wax off, jacket on/jacket off training, if you will) using the single most effective defensive maneuver available in trading- stop-loss selling. Day trading results were mostly minimal, treading water for the most part. Intuitive decisions to move both portfolios all-in several times on the long side in late August/early September gave us the only real gains we had for 2010, in the +7-8% range.

Does alpha even exist, or is it all just plain luck? There's an entire industry built on the premise that it's possible to 'beat' the market. Obviously, most funds don't deliver. Sometimes it's enough to have played the game and to have simply 'not lost.' I feel fortunate right now to be within 10% of any 2008 figure, and I'm thinking seriously of moving away from day trading. I can't retire (comfortably) on what I have right now, but I can in 13-14 years if the portfolio returns 6-7% a year until then (realistically, I think most of us Boomers should be thinking age 70).