Beta, alpha, risks, and reward There are two basic types of risks in the market, the systematic and unsystematic risks. In financial text books, the system risks usually are explained as beta and the unsystematic risks are the alpha. All of stocks would have be affected by system risks but perform differently to market crash or euphoria. Usually the liquid and high capitalized stock would perform tightly with the system or market as a whole and the illiquid and low capitalized stocks would less changed with the environment. There were stocks that continually and substantially outperformed the market as a whole with the same and in some cases less risk. It is my observation that the stocks with high alphas tend to move independently of the overall stock market index and were much more likely to offer better returns going forward than other stocks after system crash. There are a few reasons for the better performance of high alpha and low beta stocks in my understanding: First, some stocks were fundamentally unsound and were sold short by professionals or even the toughest bargain hunters who bet the stock would go down. When the short sellers began to buy back or stop, the lowest stock prices would be available. These not-so-wonderful or financial distressed companies have been sold on fire, so that their price are highly discounted to their remaining value. Once it happens, sooner or later it would experience an explosive rally if it could hold its remaining value intact. This often happens near short-term stock market bottoms, as we saw in April 2001 and October 2001 when some technology stocks skyrocketed due to short-covering rallies; in March 2009 when GFC crash long enough! The second reason for high alpha is due to buying pressure. Institutions and individuals recognize the powerful fundamental performance of a group of stocks and they buy them heavily. As we know, the stock market, like any other market, responds to supply and demand. Increased demand pushes stocks higher and higher relative to their respective indexes. The key is to identify the high alpha stocks and get your position after system has pushed all down and before the toughest bargain hunters to trade these highly discounted stocks and don't be distracted by the penny profit. Usually the trader type of bargain hunters would pick the little profit but often than not to see the train leave away from the station. So logically, if you buy you should be sure the discount or margin of safety have been setup unprecedentedly; it should not be the actions based on the feeling but a process to be sure you get the high alpha when system risks have played its most power to force people burn the money on fire. A lot of bargain hunters have skills to pick up the bottom but have not business plan to get smooth profit to their portfolio in long term. They tend to be tactic right but strategic wrong.