The term “alpha” entered the vocabulary of Wall Street sometime in the 1980s, gaining widespread use in the 1990s with the proliferation of hedge funds.It reached cliché status around 2000 by which time everyone was pontificating about it, with many having no idea what they were talking about.

An alpha source is a circumstance that affords an investor the opportunity to take non-market risks with the promise of positive returns. For example, if you can continually get some actionable information before the market does (legally or otherwise), you would have an alpha source.

There are innumerable alpha sources in the world, but none ever persist. This follows from the inevitability of diffusion; as soon as enough people have access to a particular alpha source its value disintegrates. Think of some information advantage: its potency is inversely proportional to the number of investors who can access it. Once enough people have the information, it degrades into an advantage for no one.

Over the past hundred and fifty years, many alpha sources have come and gone. This article reviews some of the most potent sources available to investors since the late 1800s.

Read more from Quandl’s blog here.

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