What are the areas of the Buyside in which investment analysts/PMs add the most value?
I am continuing to pursue a career in ER, investing largely for comp and interest in general knowledge reasons, but at the crux of the career path, it seems that (at least in some sectors of the space) you are only adding value if you are generating alpha by finding companies that are mispriced. Because there are millions evaluating these companies with publicly available information, it is competitive, and thus many do not generate alpha.
I have two questions.
1) If this is the case, then why are there so many resources invested in trying to find this alpha, in terms of people/labor (us), and literature, etc. Is there still a prevailing belief that this art is lucrative, and this investment is worth it, even if it is just a few firms/PMs that support this? If we want to add value in this industry, do we have to believe that by honing our craft, we will be able to be in this "successful" group by generating alpha, or are there other ways to add value?
2) If there is no way to add value without generating alpha or helping others to do so in public market investing, and if generating alpha is extremely rare (is there a whole multi-billion dollar industry dedicated to spinning its wheels?) and we're all here for reasons of our own ($, interest, etc.), are there any other areas in investing where we may be able to add value, either by generating alpha with a higher success rate or by providing other value that can help to move a goal forward (I imagine that the only goal in most relevant spaces is generating alpha)?
Generally, you're in the game because you think you know how to generate alpha and your method is relatively unique. Otherwise, buyside isn't really for you. Also, there are many paths towards alpha - value, growth, momentum, pseudo-macro. If you speak to PMs, they display a level of confidence in their methodology in getting to this alpha (either because they must or because they genuinely believe it). Typically in LO AM (equities), you're adding alpha via three thing: sector/industry allocation, stock selection, macro. Allocation will yield alpha if you have a better grasp of where economy is heading and better understanding of how that trickles down to sectors and industries. Selection will yield alpha if you able to better identify mispriced companies are companies that performs better than peers. Macro will yield alpha if you are able to better read whether or not certain themes are poised to do better (ie. growth vs. value) and screening your picked based on that) If you don't believe in any of the above, or your ability to capitalized on any of the above, that's when you get into the whole alternative space: private equity, activist investor type. Like you said, alpha generation is rare and rarely consistent - hence rise in passive over active funds and fee shrinkage.
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