Five Principles to Hold Onto

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Co-authored with Laurence B. Siegel and M. Barton Waring, this article identifies five investment principles — derived from the Sharpe market model — that practitioners should maintain regardless of institutional or organizational pressure. The authors observe that investment professionals often learn sound theory in training and then abandon it on the job under the influence of product incentives, short-term performance pressures, and behavioral biases.

The five principles are: making alpha and beta decisions separately; recognizing the zero-sum nature of active management in aggregate; applying different criteria to alpha and beta decisions; valuing alpha that is genuinely delivered; and paying appropriate fees for each component — high fees for alpha, low fees for beta. The article draws on Scanlan’s experience across both large passive-dominant institutions (BGI) and active management firms to illustrate each principle with real-world context.