Our Philosophy

Investors have been led to believe that the stock market will give them superior long-term returns if only they stay the course through thick and thin.

The Wall Street crowd telling this story leave out certain vital pieces of information. They fail to point out that the "thin" part of the story can last far longer than anyone expects. Investors who believe that they may have to endure 10-15 years of poor or negative returns would certainly approach investing in the stock market with more caution. Yet dry spells like this have happened several times in the past and could happen at any time in the future.

S&P 500 Peak 5-Year 10-Year 15-Year 20-Year
Peak Year Valuation Real Return Real Return Real Return Real Return
1901 25.2 X Earnings 3.4% 4.4% 3.1% -.02%
1929 32.6 X Earnings -13.1% -1.4% -0.5% .04%
1966 24.1 X Earnings -2.6% 1.8% -0.5% 1.90%
2000 44.3 X Earnings -5.3% -3.9% 2.2% ?

During such periods, the market suffers through a sequence of down years, followed by up years, recurring several times with the down cycles canceling out the gains of the up cycles. In the past, these long periods of investor frustration have finally ended when the market returned to under-valuation. At that point, all but the most dedicated investors have thrown in the towel. This sets the stage for the next secular bull market, during which a new generation of investors accumulates stocks for the long-term.

Alpha's investment philosophy is simple: Take our fair share in bull markets, and don't give profits back in bear markets. Our duty to our clients is to deliver superior long-term results without the heart-stopping volatility that often accompanies traditional equity investments.

Understanding Alpha's Methodology

Alpha manages money using asset allocation strategies that are based on long-term seasonal factors. A "seasonal factor" is a calendar-driven cause of certain recurring patterns in the stock market. A simple example would be the "Santa Claus Rally", which is the persistent tendency of the stock market to rally in the final days of December, beginning just before Christmas. Over the past 38 years, using the Russell 2000 small cap index as the investment medium, the last seven days of December have been up 89% of the time, returning 2% on average.

Another recurring seasonal factor is the distribution of stock market returns over the four-year presidential election cycle. The third year (pre-election year), for example, has not suffered a loss since 1931 and averages over twice the return of the other three years in the cycle. Alpha believes that these recurring patterns are "structural"; in other words, they are caused by factors that are embedded in the investment "structure" of these time periods. These structural factors do not "guarantee" that certain things will happen in the market, but, in the absence of other countervailing forces, they strongly influence the market. We believe that long-term investors who consistently exploit these factors will enjoy above-average returns with reduced risk compared to investors who are exposed to full-time market risk.

Alpha's investment strategies are "fully disclosed". This means that the rules governing the strategies are objective, easy to understand and explain, and are completely explicit. No black boxes, no esoteric techniques, and no manager subjectivity. The strategies are mainly executed using index funds and/or no-load mutual funds. ETFs may also be used on some trading platforms. Alpha's view is that when investors understand the exact nature of their investment program, why the risks are being taken and when, they are more comfortable during the inevitable periods when the strategy lags the market and are willing to persevere through periods of underperformance. The history of our strategies has shown that perseverance has always paid off.