Hi Everyone,

I thought this week’s article would be about manufacturing having listened to the State of the Union address; however, I found my thoughts on this to be too somber for a beautiful, sunny Sunday in Arizona.

Instead, we’ll take a look at important investment terms and then remember that new technologies like turning kelp into oil are very exciting.

Maybe we need to redefine what U.S. manufacturing should stand for.

~Susan

Alpha, Beta & Kelp

Investment selection and performance measurement can be described in many ways. Understanding certain terms can put things into perspective especially in periods of volatility like 2011. Here are two you should know:

Alpha – Alpha measures the difference between an investment’s actual returns and its expected performance, given its level of risk as measured by beta. A positive alpha figure indicates the investment has performed better than its beta would predict. In contrast, a negative alpha indicates that the investment underperformed, given the expectations established by its beta. Alpha is often seen as a measure of the value added or subtracted by a portfolio manager.

Beta – Beta is a measure of an investment’s sensitivity to movements in a benchmark. A portfolio with a beta greater than one is more volatile than the benchmark, and a portfolio with a beta less than one is less volatile than the benchmark.

The February 6, 2012 issue of Time magazine has a summary of biofuels on page 14 that reignited my interest in this field.

“The perfect biofuel may look a lot like seaweed. It has sugars that can be turned into ethanol, thanks to scientists who created an enzyme that does all the work. Per unit, seaweed could make five times as much ethanol as corn, though we’d need oceans of kelp farms to feed our current appetite for fuel.”

The article has a neat little chart that also mentions how algae can turn sun, water and carbon dioxide into oil too.

It seems to me that the beta of biofuels could be less than one but the alpha of the right one could be very, very positive. Could it be kelp?

Until next week,

Susan R. Linkous