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Larry E. Swedroe
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The Incredible Shrinking Alpha: And What You Can Do to Escape Its Clutches Kindle Edition

by Larry E Swedroe (Author), Andrew L Berkin (Author) Format: Kindle Edition
4.1 4.1 out of 5 stars 151 ratings
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Alpha still exists! But that doesn't mean it is easy to find, or even worth the pursuit.
Larry Swedroe, author of the bestselling series of The Only Guide investment books, and co-author Andrew Berkin bring you the quantitatively chilling tale of The Incredible Shrinking Alpha. As aficionados of classic science fiction, Swedroe and Berkin saw similarities between the monumental struggle of Scott Carey, novelist Richard Matheson's Incredible Shrinking Man, and that of every individual investor trying to beat the market. Swedroe and Berkin explain in academic yet simple terms what is happening to the alpha for which so many investors yearn.
Offering compelling data from decades of academic research, Swedroe and Berkin present the hard truth as they know it — it's not worth the time or effort spent battling to win those few extra cake crumbs. Instead, focus on the things you can control and discover what life has to offer beyond the quest for alpha. 
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  1. Print length
    106 pages
  2. Language
    English
  3. Publication date
    January 14, 2015
  4. File size
    4075 KB
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Editorial Reviews

From the Inside Flap

Praise for
THE INCREDIBLE SHRINKING ALPHA
"Swedroe and Berkin provide a concise treatment of the research passive and active investors (both individual and institutional and also financial advisors) need to become more successful. This treatment also appeals to college finance students seeking to gain a better understanding of passive versus active investing, along with 'the correct answers.' The authors enable investors seeking to 'generate real alpha' to understand that passive investing is increasingly the correct approach, while active investing is just the opposite."
— John Haslem, Professor Emeritus of Finance, University of Maryland, Robert H. Smith School of Business and Editor/Author of Mutual Funds: Portfolio Structures, Analysis, Management, and Stewardship
"Ever wonder why your actively managed funds almost invariably disappoint you? Piece by piece, the authors peel back the claims that active managers can add value in a system where it gets harder and harder to generate Alpha. In a world where academic research uncovers the true sources of return and markets relentlessly become more efficient, what's an investor to do? Go passive! Swedroe is the master of explaining financial research in terms that every reader can easily understand. Read and improve your financial acumen."
— Francis Armstrong III, Author of The Informed Investor and Investment Strategies for the 21st Century
"Based on decades of research and my personal experiences, I too gave up the quest for alpha long ago. I hold an endowed chair in investments and am a member of The Wall Street Journal Experts panel. Yet, I do not own a single individual stock or corporate bond. Rather, I invest in low-cost passive mutual funds and ETFs. Swedroe and Berkin demonstrate how this strategy can be used to achieve a prudent, globally diversified portfolio. Their book could well end up saving you a lot of money — your money — and giving you a lot of free time."
— William Reichenstein, Investment Professor at Baylor University
"In this short but powerful book, Swedroe and Berkin have advanced the debate on active v. passive to a new level. Their discussion of how alpha (beating the market) has steadily morphed into beta (achieving market returns) is the best description I've read of this process yet. No polemics here, just a data centered exposition of the issues — the longtime trademark of Larry Swedroe."
— Edward Wolfe, Professor Emeritus of Finance, Western Kentucky University
"Swedroe and Berkin roll up their sleeves and dig into decades of research to help us better understand how markets work. The result is a clear and concise synthesis of how investing can indeed be a 'winner's game.' Read, study and apply their approach."
— Tobias Moskowitz, Fama Family Professor of Finance, University of Chicago Booth School of Business and Managing Director, AQR Capital Management

From the Back Cover

"If you think you can beat the market, you need to read this wise book. Swedroe and Berkin show that whatever superior investment performance you may achieve is fully accounted for by the risks you are taking with your money and even risk compensation may be shrinking as well. But there are things you can do, and the authors suggest a number of sensible strategies to improve investment results."
— Burton Malkiel, Author of A Random Walk Down Wall Street

Product details

  • ASIN ‏ : ‎ B00S9UKXN2
  • Publisher ‏ : ‎ BAM ALLIANCE Press (January 14, 2015)
  • Publication date ‏ : ‎ January 14, 2015
  • Language ‏ : ‎ English
  • File size ‏ : ‎ 4075 KB
  • Text-to-Speech ‏ : ‎ Enabled
  • Screen Reader ‏ : ‎ Supported
  • Enhanced typesetting ‏ : ‎ Enabled
  • X-Ray ‏ : ‎ Not Enabled
  • Word Wise ‏ : ‎ Enabled
  • Print length ‏ : ‎ 106 pages
  • Customer Reviews:
    4.1 4.1 out of 5 stars 151 ratings

About the author

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Larry E. Swedroe

Larry E. Swedroe

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Larry E. Swedroe is head of financial and economic research for Buckingham Strategic Wealth. Larry holds an MBA in finance and investment from New York University and a bachelor’s degree in finance from Baruch College.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, "The Only Guide to a Winning Investment Strategy You’ll Ever Need." He has since authored or co-authored 18 more books about investing and behavioral finance. Larry is a sought-after speaker and prolific writer, and he contributes weekly to multiple national outlets including ETF.com.

Customer reviews

4.1 out of 5 stars
151 global ratings

Customers say

Customers find the book readable, concise, and well-written. They also say it makes a complex topic easy to understand. Readers mention the book is informative and thought-provoking. They appreciate the great references and reminders of things they already know.

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ReadabilityThought provokingBook length
19 customers mention "Readability"17 positive2 negative

Customers find the book clear, concise, and well-written. They say it makes a complex topic easy to understand with easy analogies. Readers also mention the logic is compelling and the research behind it is rich, thorough, and sound.

"...but the facts and research behind it are rich, thorough, and sound...." Read more

"...Very logical arguments and fact driven. Also an extensive background in statistics isn't necessary to digest this info." Read more

"...are in the public record for those who know where to look - it serves as a logical and well-structured argument on its own, and refers readers to..." Read more

"...the subject of active vs. passive investing, and wisely use easy to understand analogies to make their points...." Read more

14 customers mention "Thought provoking"14 positive0 negative

Customers find the book incredibly informative, thought-provoking, and interesting. They say it contains great references and is a good reminder of things they already know. Readers also mention the facts and research behind the book are rich, thorough, and sound. In addition, they say the book is short but full of interesting analysis and includes great analogies to convey their points.

"...but the facts and research behind it are rich, thorough, and sound...." Read more

"...and well-structured argument on its own, and refers readers to appropriate academic studies should they have the desire to read the original...." Read more

"...n't learn anything new to me but I found the book to be a good reminder of the things I already knew...." Read more

"...he has used several times before, but for the most part the book is full of new material and cites numerous academics studies that other books have..." Read more

3 customers mention "Book length"3 positive0 negative

Customers find the book short and well-read. They also appreciate the references and how it ties everything together.

"...The book is short and reads well. His logic is compelling and investors of all stripes can benefit from the sound advice. Highly recommend." Read more

"...I think have read all the studies referenced but this short book ties everything together." Read more

"Short and sweet!..." Read more

Top reviews from the United States

Sean X. L.
5.0 out of 5 stars Great informative book for both armature and professional investors!
Reviewed in the United States on March 12, 2015
Verified Purchase
It is a great book for both armature and professional investors. The book is light to read (the 2 authors did a great job to put dry academic papers into layman's terms), but the facts and research behind it are rich, thorough, and sound. In 2007, Professor Andrew Lo and his student at MIT published a famous paper: "What happened to the quants in August 2007". It's the first paper I'm aware of that explained and discussed the fact of shrinking Alpha and rising systematic risks among active fund managers. The whole process was a spiral-down: more competition for alpha -> shrinking alpha -> increased leverage to keep the required return level -> higher systematic risk -> alpha becomes beta -> hedge fund beta. 8 years past, I am so glad to see Swedroe and Berkin rolled their sleeves and dig deeper into this trend and provided many newer, broader, deeper, and more detailed facts, phenomenons, research, and discussions on the investment styles' evolving mechanism and profound changes in the investment world.

I got to know Mr. Berkin at work. Berkin is such an intellectual researcher and veracious investment manager that you have to consider his opinion seriously. What should we do in today's market? Well, no matter what we're going to do, read this informative book first, make your informed decisions.
8 people found this helpful
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D. Hendu
4.0 out of 5 stars very thought provoking
Reviewed in the United States on May 27, 2015
Verified Purchase
I've been in the industry for over 15 years and have come across few well put arguments as this one for the case against active management. Very logical arguments and fact driven. Also an extensive background in statistics isn't necessary to digest this info.
One person found this helpful
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CS
5.0 out of 5 stars This book is a great introduction to the challenges of achieving alpha for the ...
Reviewed in the United States on March 5, 2015
Verified Purchase
I spent the greater part of five years, as well as tens of thousands of dollars, earning an MBA and the Chartered Financial Analyst designation. An alarming amount of what I learned in those programs is available to anyone willing to commit $10 and a few hours to reading Swedroe and Berkin's booklet. While there technically is "nothing new" in the book - all the books and academic papers used to construct their arguments are in the public record for those who know where to look - it serves as a logical and well-structured argument on its own, and refers readers to appropriate academic studies should they have the desire to read the original. I was surprised at how timely some of the cited papers were, with many having been published in the Financial Analysts Journal in recent months.

For what it is worth, I work in the investment industry and manage capital in an active setting. Every "active management hurdle" explored in the book (institutional competition shrinking the overall potential for alpha, the compressed relative skill differentials among investment managers, successful investment strategies getting "played out," difficulty in earning enough to overcome fees) is real. This book is a great introduction to the challenges of achieving alpha for the novice investor, and contains great references for those who want to read more on their own.
3 people found this helpful
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GeraldM
3.0 out of 5 stars I didn't learn anything new to me but I found the book to be a good reminder.
Reviewed in the United States on March 1, 2015
Verified Purchase
This book is fairly light-weight in both length and content. I read it in under two hours and I consider myself a slow reader. The message of the book is contained within 60 pages or so (on my Kindle) which represented about 2/3rds of the content. The rest was appendix material. I didn't learn anything new to me but I found the book to be a good reminder of the things I already knew. Others will have a different experience depending on background (mine spans about a decade now so I've read a fair amount and I read financial news and blog posts every day). Speaking of blogs, I read Larry's frequent posts and I couldn't help but wonder why he chose to do present this material as a book. It would have made a good 4 or 5 part series for a blog (there is another author to consider so I won't speculate). I think most people should read this book because it is a succinct reminder of the enormous difficulty in generating Alpha. Unfortunately, the author's don't tell you what to do about it other than buy low-cost passive funds (who hasn't already said that other than the self-interested mutual fund industry?). They don't provide tools or advice on portfolio construction and perhaps that is not in their interest to do so - nor would it be possible in the short format of this book anyway. Still, they could have made some recommendations for those who want to explore the ideas further. So the reader will come away with knowledge about the nearly insurmountable odds of generating Alpha through active management but it will be left to them to figure out what to do next. Yeah, I know, buy a low-cost, passive index fund along with some passive bond fund exposure, consider global allocation, etc. etc. That all sounds pretty good but it really doesn't cut it given the complexity of the passive fund space.
25 people found this helpful
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Mark T. Meredith
5.0 out of 5 stars Great, Quick Read
Reviewed in the United States on January 23, 2015
Verified Purchase
Larry Swedroe hits another home run with The Incredible Shrinking Alpha. This is a timely book that all investors should read, plus it can be read it less than 2 hours.

Much of the discussion in the book is about how alpha has now become beta. Over the years different factors have been discovered the can explain the overwhelming majority of portfolio returns, and it just so happens that many of the outperforming managers simply had more exposure to these risk factors. With the rise of ETFs and passively managed mutual funds, investors are now able to gain access to these risk factors in a much more cost effective way than paying for active management.

If you have read Larry Swedroe's other books and blogs you will see some similar stories and analogies that he has used several times before, but for the most part the book is full of new material and cites numerous academics studies that other books have not mentioned.

I highly recommend this book for all investors interested in this topic along with The Quest for Alpha.
10 people found this helpful
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ChrisB
2.0 out of 5 stars Weak on pragmatic advice
Reviewed in the United States on August 27, 2019
Verified Purchase
The book does a good job skimming through a lot of research to identify different sources of alpha. It's very weak when it comes to giving actual guidelines on how to use the information to build your own portfolio.
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Top reviews from other countries

Peter K.
5.0 out of 5 stars Continuous outperformance by active investors is a myth
Reviewed in Germany on June 5, 2018
Verified Purchase
Buy and hold strategy in ETF is superior. That’s demonstrated quite impressive by two scientists. Good to read for a private investor.
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Pooya Kazemi
5.0 out of 5 stars Fantastic review of active vs passive investing
Reviewed in Canada on April 4, 2016
Verified Purchase
A very concise & convincing review of why active investing fails to beat the market over the long term. For those new to investing, this is one of a few books you should read before putting any $$ into the market. Yet again, we see why active investing is bad for your life & wealth.
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Edouard
5.0 out of 5 stars After reading this book you will not invest the same way.
Reviewed in France on January 2, 2016
Verified Purchase
Another great book from Larry !

I am a private investor from Europe. Passive investing is not as important as in the US. Larry is one of american author's I read on the subject.

This book is a very nice update from his previous book "the quest for alpha". It is backed up with a lot of data, science and evidence.
Every investor should read this book ... especially if he invest in expensive mutual funds.
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