There Is No Public Alpha

Introduction

Recently, I have started to shift some of my writings behind paid subscriptions. One of the most common recent DMs lately are questions around turning on paid subscriptions and the natural skepticism surrounding it.

A common variation of this skepticism is “why would you dilute alpha if you have it?” To which my answer is simply: “I wouldn’t. You are not going to get a defensible edge by simply reading the articles.”

That has always been my view, and continues to be my view on a going basis. Let me explain.

Understanding Content & Alpha

If we want to put forth a serious argument about this, there are actually 3 serious parts to this and they often commingled together.

The first part is whether or not any kind of “public” writing about ideas within our industry can be useful. Public, meaning - outside of the scope of people that gain monetary benefits from the knowledge and implementation of the idea.

The second part is whether or not “public” writing about ideas can be “alpha” - alpha as in - knowledge and implementation that allow you to gain a competitive edge over the average participant in the markets.

The third part is whether or not it is “worthwhile” or “economic” to pay for “public” knowledge, regardless of whether or not it is useful or contains “alpha”.

My Beliefs

My stand is largely the following:

1. Public writing CAN be useful. It is more important to say here that not ALL public writing is useful. That is true not only inter-person, but intra-person. Usefulness being subjective aside, if I judge MY OWN writings...
   
   I’m chronically online, use my phone a lot, and tweet a lot. Most of what I tweet about is not “useful”, some of it may not even be “correct”. Effort by a person varies across the domains he is working on and the settings he is in. I am more serious about correctness and “usefulness” in some domains and settings than I am others. I’d like to think I occasionally write or say useful things.
   
   There are some very public, very useful public personas. In the quant domain on X, RobotJames and MacroCephalopod both have very well written repositories of ideas that I think are both broadly correct and broadly useful. Gappy, among many other authors have publicly written books and papers that I have personally found to be very useful. Yet, it should be easy to find agreement that even heroes may occasionally say things that are NOT useful.
   
   

2. Public writing CANNOT contain persistent alpha. You will not be able to have an edge from just reading about things. IF you do, that edge is not sustainable and will be competed away very quickly.
   
   A good example of this is whenever a “hot strategy” appears that seems like free money. A recent trend is some tech-savvy participants in Polymarket connecting to online feeds / transcripts for mention markets in Polymarket.
   
   When someone DOES drop alpha, he/she immediately invites competition and therefore the alpha will soon cease to exist. You will see follow-up posts about how it has suddenly become 10x harder or “it doesn’t work anymore” posts coming shortly after.
   
   Therefore, alpha in public writings is itself a paradox. People are not incentivised to drop alpha, and if they accidentally do, it ceases to become alpha.
   
   

3. Is it worthwhile to pay for public knowledge? I think it entirely depends on the quality of the content, your motivations and your circumstances. Everyone has heterogeneous expectations and different utility curves.
   
   Personally, I have vastly benefited from paying for knowledge, access or consultations; and have been the beneficiary of many such relationships.
   
   You are best placed to make this decision for yourselves, and I think is outside the scope of this piece.

What I WOULD like to argue about, is that information can be public, NOT be alpha AND still be USEFUL (to some people).

My Vantage Point

I have had the pleasure of interacting with, interviewing and grooming talent in the industry across multiple podshops over many years. In doing so, you talk to a lot of people, listen to a lot of pitches, and form a world view about what is “truly orthogonal”, what people believe is orthogonal but is actually “commonplace”, and what is “table stakes”.

In my opinion, and others may disagree - a supermajority of ideas fall in the second category of believed to be orthogonal but is actually “commonplace”. The industry is no longer in its infancy. It has been around for more than 40 years, and have been incredibly commoditized over the past 10. There is very little, perhaps no super secret sauce that can make or break a firm.

Instead, the very best firms have a giant repository of little “commonplace” things that work and are done exceedingly well, and whilst each individual “thing” is not earth shattering by any right, a large collection of them represents a defensible moat of operational and technological complexity.

I really believe this: the secret sauce is not a single ingredient, but a complex and multifaceted blend of a hundred different ingredients.

So, my definition of alpha and the range of information I can and am willing to share before I think it is detrimental is larger than most.

The Formation Of Alpha

There are broadly 3 steps needed to truly obtain a form of alpha that is defensible and represents an “edge” over your competitors.

1. Discovery: You discover an insight. Either from first principles or from a source. This is uncovering, learning something new, a flash of insight. This is the “whispered alphas”, the “discussions”, the “know-how”.
   
   Beginners often think THIS is alpha, and at some point in my life as well I was very reserved about talking about anything at all.
   
   This is absolutely NOT alpha. You could collect a hundred different people and tell them the same things, and 99 of them will not get the implementation right. In fact, a vast majority of them won’t even begin to act on the information. Therefore, the act of “knowing/discovery” cannot be the alpha.
   
   Am I worried that competitors discover the same insight as I do, sure. But I think of it as an eventuality rather than an impossibility. Even without my intervention - it is an EVENTUALITY that we will stumble upon the same USEFUL information if we are looking for it. Because GOOD information is sparse - it is for this reason that all EARNEST recommendations by industry practitioners revolve around the same papers and books even when we are swimming in choices.
   
   

2. Understanding: You consume, understand and perhaps develop this insight to a tangible and implementable idea that is useful for your investment process.
   
   Discovery is knowing a study or a relationship exists. Understanding is internalizing it, giving yourself the justifications for why this behavior/relationship makes sense and “making it yours” in your world view.
   
   Given the same data, it is absolutely possible for humans to have extremely divergent views on the inference of the data. This represents the first “fork in the route” for many. Do you see a factor paper and think to yourself, this seems like a “nice premia to capture” or “everyone is going to pile in on this, I will likely need to hedge it?”
   
   

3. Implementation: You implement this idea and go through multiple rounds of iterations until this implementation PROVES useful to you.
   
   Along the way you make mistakes and gain tactile knowledge about all the ways this idea can and have failed. Once you have actually implemented your idea, and have it work in line with your expectations, you actually have alpha.
   
   Anyone that is actually in the industry and is intellectually honest will tell you that “implementation is king” - many good ideas die in the arms of inexperienced or mistaken implementation.
   
   The very little things matter. Normalizing your features matter. Clipping your tails matter. The 10 little discretionary decisions that go into a fully systematic research process will lead to extremely divergent outcomes.
   
   All seniority in research and portfolio management is exercising judgement and taste in the “little discretionary decisions”, because the “big decisions” are already often made for you (unless you own the place).

A Small Example Of Divergence

Everyone knows that you can improve your portfolio with a portfolio optimizer that tries to solve some kind of convex optimization of getting the best returns given some risks.

Portfolio optimizers are not a secret.

Yet, they are wildly divergent in practice. If you are ACTUALLY look at optimizer implementations, there are SO many different optimizer variations that are uncorrelated to each other even with the same inputs (it needs to be sufficiently high dimension - e.g. a large number of instruments).

Anyone who has worked in a commingled environment and has seen the hundreds of optimizer options knows this by heart, whether or not they admit it.

Why? Because the details matter:

1. What constraints are you setting?

2. What are you feeding in as your “forward” returns?

3. What are you feeding in as your “forward” risks?

4. What algorithms are you using?

These “small” details lead to a gigantic explosion of divergent possibilities in results.

Where I Think My Content Sits

I do not purport to share alpha, at least not in the investment space of ideas. I’d like to share ideas, beliefs and writings on a few things I find interesting.

My view is that the only alpha I may possibly be leaking is discovery alpha, and I FURTHER BELIEVE it is so many degrees of separation from actually being in a form that is competitive to me that it is actually irrational for me to worry about potentially leaking “alpha” from sharing ideas.

IF someone puts in the effort to understand and implement some of the ideas in the articles, and go through the iterative steps of implementation, COULD it be TRANSLATED into alpha?

Yes, absolutely. Would it hurt me? Possibly - there are other factors to consider like the overlap in universe, turnover, etc.

But, by the time understanding and implementation is done, it will be:

1. Fundamentally a different product than the one I have implemented given the same idea, and

2. So much work and effort would have been put in that it wouldn’t be rational to attribute it to my sharing, and

3. If the person was serious about looking for that knowledge, he would probably eventually stumble unto the same idea. The counterfactual here is that it would not have mattered IF I was the source, as long as A SOURCE existed.

Value Proposition

Okay, so then, what is the value proposition?

I’m writing public content, I CLAIM it is useful, and I STATE that it is not going to be “trivially” alpha, then, what am I actually selling, and who are my target audience?

There are three broad ideas here:

1. Due to my fortunate experience, I have a somewhat unique perspective on what is practiced by everyone and still mistakenly believed to be alpha. Because of this, the range of information I can and am willing to share is larger than most.
   
   Some of this information will be useful to those who don’t know better AND would not have had access to it in the first place.
   
   

2. There is undeniably a supreme mountain of junk out there that is impossible for most people to parse. I am fortunate that I spend less of my time in implementation details and most of my time reading and thinking about things - especially new things.
   
   Here, I think my value proposition is essentially tasteful curation on what is available and generally useful. There are ideas here that can be, through painful distillation, eventually get to alpha; and would likely have been buried under the pile of junk that exists.
   
   Information overload is a very real phenomenon, and paying for access, structure and filtration is not an uncommon service. There are swathes of knowledge online and yet we spend hundreds of thousands of dollars on education precisely for access, structure, curation and filtration.
   
   

3. Occasionally, I might share an insight that may be real to you but completely irrelevant to me because it is so far outside of my mandate that it’s not remotely interesting to me.
   
   One example of the above I can give you is that there are obvious lead lags arbitrage between SGX and INE because 95% of price discovery happens on chinese exchanges, especially around singapore opening auctions because of the chinese night sessions.
   
   I know factually that teams are acting on this with fairly trivial implementation till today. It can be true, verifiable alpha (if you do the analysis) and yet so completely uninteresting to me that I don’t really care who looks at it.

Why Charge?

“If you were successful you would not need to sell anything.”

I think this is a rather easy notion to dispel. Plenty of successful public and private figures have many diversified sources of revenue streams. Sometimes it’s sitting on different boards, sometimes it’s whisky, sometimes it’s writing.

My motivations are along the lines:

1. I have a nice, (quiet) strategic incentive to publish and charge for writings because it gives me access to a very select group of individuals (and vice versa).

2. I have been told multiple occasions, by multiple people, that they would LIKE to pay me for my writings. I’m an entrepreneur by heart - I cannot ignore product market fit.

3. I am (mostly) a deeply unserious person. See my point about often writing “useless” and “wrong” things - having people pay for accuracy and curation keeps me sharp and has been something I have always enjoyed.
   
   Professionally, I maintain a large, private repository of writings for internal consumption that are serious and “largely” correct. I have gotten extremely positive reception that my writings are, I quote “easy to follow”, “insightful” and “helpful”.
   
   While these internal writings cover a different topic - they have always been written with the mentality of serving a revolving door of readers. So writing “alpha-defensively” whilst trying to be clear, helpful and insightful has been a practice for awhile.

Should You Subscribe?

There is an entire cabal of people on FinTwit who are extremely judicious about anyone who charges for their writings/knowledge. They feel (sometimes rightly so) that it is amoral to charge for knowledge, especially with the implication that the knowledge is “correct and helpful”.

Personally, I think you should exercise judgement on your own. Finding a fit between your interest and a person’s content, knowing a person’s experience, reading his previous publications (if any), and having some interactions with said person should allow you to come to a decision for YOURSELF.

You should be allowed to pass judgement on whether something is useful to you AND whether or not something is useful enough to be worth paying for; and I think all that is fine - but claiming ALL public writings cannot be useful is intellectual dishonesty or hypocritical.

Claiming ALL paid public writings must be a scam implies that subscription/knowledge markets are so inefficient that people are willingly transacting at a given price whilst receiving absolutely 0 utility for an extended period of time.

As a seasoned market participants I absolutely cannot believe that. Markets being inefficient would suggest all subscribers are stupid - and perhaps some are, but I actually know my subscribers are certainly NOT stupid!

The Case In Point

To share a case in point about the difficulties/friction of going from Discovery -> Knowledge -> Implementation, how many of you simply glazed over the information about the SGX-INE arbitrages because it is not even remotely in your field of interest?

You would likely not even have pulled up the the exchanges to see what products I could possibly be talking about. We are lazy creatures expending minimal energy at heart, so discovery cannot possibly be alpha.