Why Alpha Is Hard to Keep

Even when an investor finds a real edge, it tends to shrink over time. Here is why alpha decays through competition, costs and growth, and what that means for anyone trying to beat the market.

Competition erodes edges

When a strategy works, others notice and copy it. As more money chases the same opportunities, prices adjust faster and the edge shrinks. One well-known academic study found that the extra returns of published stock-market patterns fell by roughly half after the research was published.

Unlock all of Investing School

The rest of this lesson, its chart examples and quiz are part of Investing School. Start free with Stock Market Fundamentals and the first lesson in every category.