While the term “alpha” is widely used, in our experience, it’s not particularly well understood. Alpha, properly defined, is return in excess of what could have been expected given the risks assumed to generate the returns. Notice that this is not strictly outperformance relative to a benchmark, but rather, its relative performance given the level of risk taken.

In addition to death and taxes, investors could be forgiven for being seduced into the belief that there are two additional certainties in life: 1.) stocks will only ever go up, and 2.) the Patriots will either make it to the Super Bowl, or at least be in contention each year (they have played in the AFC Championship game in each of the last seven years).

In a recent article, Morningstar analyzed the performance of long/short equity funds, and concluded that while many managers in the category exhibit stock-picking skill, that skill has been insufficient to make up for the fees. Fair enough, but what caught our eye wasn’t the conclusion, but rather the methodology employed to assess skill: multi-factor regression analysis using the Fama-French factor returns.

My hometown has a locally owned pizza place that’s been a staple of the community for almost 40 years; I even worked there for a stint in college. The pizza they serve is pan style and both the dough and sauces are made fresh daily. Even the toppings are scrutinized for freshness throughout the day. The owner’s life has been dedicated to improving the customer’s experience with the quality of their product. For example, as a delivery driver I wasn’t allowed to chew gum, because “the first thing the customer should smell is our pizza, not your gum.” It’s the kind of food that transcends the body’s basic necessity of fuel and feeds your soul, makes you happy, and causes you to pause, if only for a second, to reflect on the complexity of the flavor.