Many investors consider pursuing excess returns (Alpha) as the holy grail. The logic is simple: beating the market is never wrong. Indeed, it’s not wrong. But there’s a trap here — your Alpha performance entirely depends on the overall market sentiment.

If the market trend is not favorable, no matter how impressive your Alpha is, it’s useless.

Think of it this way: there are two investors, Alex and Pat. Alex is particularly skilled, earning 5% more than the market each year. Pat is less skilled, earning 5% less than the market each year. The result is obvious — Alex’s annual returns are 10 percentage points higher than Pat’s.

But what if they choose different entry times?

That’s when the story reverses.

Market cycles are brutal. Sometimes there are big rises and falls, sometimes there’s sluggish consolidation. An excellent investor who enters at the wrong time might perform worse than an average investor who times the market correctly. Alpha can indeed help increase your returns, but what truly determines whether you profit or lose is often Beta — the market’s own upward or downward trend.

In other words, rather than spending effort chasing Alpha, it’s better to ensure you catch the Beta tailwind first. Timing and direction are often more valuable than technical skills.