Children’s Day and Wealth Creation: Investing in the Next Generation
31-October-2025
12:00 PM
Jensen’s Alpha and the Art of Wealth Uncomplicated
Markets reward risk-takers, but how do you measure whether returns come from true skill or just favourable conditions? This is where Jensen’s Alpha becomes invaluable.
Jensen’s Alpha distinguishes genuine performance from simple market movement. For HNIs and UHNIs, it offers a data-backed lens to evaluate whether portfolios deliver value beyond what risk alone would explain.
Understanding Excess Returns over Benchmarks
Every investor is entitled to a return that reflects the level of risk undertaken. For example, an allocation of 60% in NIFTY50 Index Funds and 40% in Fixed Deposits carries a Beta of 0.6, with an expected return of 9.2%. If the portfolio actually delivers 14%, the excess 4.8% is Jensen’s Alpha.
Why This Matters
- It equalises risk across portfolios for an apple-to-apple comparison.
- It highlights whether returns are due to skill or just exposure to risk.
- It ensures outcomes are measured fairly, not based on narratives.
Role of Disciplined Process vs Chance
Markets can create short-term winners by chance, but only discipline ensures consistent outcomes. Jensen’s Alpha rewards process, not luck.
Evidence of Discipline in Data
- A portfolio with 65% equity mutual funds and 35% debt like products from 2014 to 2025 delivered a Jensen’s Alpha of 6.54%, well above market benchmarks.
- Warren Buffett’s Berkshire Hathaway generated an Alpha of 5.44% over the S&P 500 across the same period, reinforcing the link between discipline and risk-adjusted returns.
- Such results cannot be attributed to luck alone, they reflect process-driven consistency.
Avoiding Narratives, Focusing on Outcomes
Storytelling is common in investing, but narratives rarely reflect true performance. Jensen’s Alpha removes subjectivity by offering measurable outcomes.
Measuring What Truly Counts
- Alpha strips away the noise of market cycles and benchmarks performance fairly.
- It provides clarity over whether a portfolio genuinely adds value.
- For investors who prioritise data over opinion, Alpha is the most objective metric available.
Jensen’s Alpha proves that true value lies not in luck but in consistent, risk-adjusted outcomes. By separating skill from chance, it ensures portfolios stay aligned with objective-driven wealth goals and uphold the principle of Wealth Uncomplicated.
FAQs
It measures the excess return of a portfolio compared to what is expected for the level of risk taken. This shows whether performance is driven by skill or simply market conditions.
Risk adjustment ensures fair comparison across portfolios. It shows if higher returns come from taking more risk or from disciplined investing.
Using statistical functions in tools like Excel, Alpha is derived by comparing portfolio returns to benchmark returns after adjusting for risk.
Yes. A positive Alpha means skill added value beyond expected returns. A negative Alpha indicates underperformance relative to the risk taken.
At Anand Rathi Wealth, Jensen’s Alpha is a benchmark for clarity. It ensures investors focus on measurable, data-backed outcomes that keep wealth creation uncomplicated.
The Power of Patience: Why Staying Invested Builds Lasting Wealth
31-October-2025
12:00 PM