"It's all Greek to me", commented subscriber PM about my note yesterday. So for those not familiar with current stock market jargon, here are some definitions of alpha and beta. Technically speaking, they are both ratios used as statistical measurements for calculating returns and risk against a benchmark. They are part of the Capital Asset Pricing Model, or CAPM, for which several economists have been given not-quite Nobel Prizes. (There is no Nobel Prize for economics but one was added and it pays in money and prestige as well as the older prizes.)

Both alpha and beta are meant to help investors determine the risk-versus-reward profile of an investment portfolio, usually used for mutual and exchange traded funds. But the Greek letters can also be used for individual stocks against a benchmark index.

Alpha is determined using a mathematical formula estimating the market return of the investment compared to that of the benchmark. Alpha is an investment's or fund's excess return found by comparing its risk-adjusted over- or under-performance against how its benchmark index did. Excess return of a fund or share relative to the index under the capital asset pricing model is its positive alpha or out-performance. If it failed to do as well as the index, it has negative alpha, and under-performed.

For both alpha and beta, the formula to work out the percentage is: Return = (EP +D - SP) /SP or in English, the total of End Price plus Distribution per share minus Start Price, all divided by Start Price. The duration, the period over which you work out alpha is up to you. But you need to use the same period for both your holding and the index you are comparing it to. You calculate the index return using the same formula.

Usually alpha is calculated annually against a well-known index like the S&P 500, MSCI, the FTSE, etc. One of the problems with this is volatility, defined to mean by movement of the values of funds holdings or that single stock in either direction vs its benchmark during shorter periods than the annual alpha tally simply because your holding is not tracking the index well. The idea is to separate volatility and fluctuations caused by not matching that benchmark from those producing performance. Without beta, alpha merely measures how well your fund or stock is tracking its benchmark index, not how much risk it is taking to try to beat it.

So meet beta, which compares a fund or stock's volatility, its moves up and down in trading, compared to the moves of that benchmark.

Beta uses the very same formula (this is not higher mathematics) but it works out the variation of return versus the benchmark over a much shorter time-frames, like a week, a month or a quarter. It is looking for lots of data on how much the return of your holding varied from the benchmark This is defined as volatility, which is then called risk. Volatility goes up if your holding frequently failed to closely match the benchmark in either direction, up or down.

A positive alpha of 1.0 means the fund or stock has outperformed its benchmark index by 1%. A negative alpha of 1.0 indicate an under-performance of 1%.

A beta of less than 1 means that the security is less volatile than the market. A beta greater than 1, it means its price is more volatile than the market. So for example, if the stock has a beta of 1.2, it is 20% more volatile. If it moves less than the market, with a beta of 0.8, it is less volatile. For all intents and purposes, volatility is treated as the equivalent of risk, which has to be deducted to work out performance or alpha.

Now a shocker: most funds have negative alpha, mainly because of management costs and as they try to create a proxy for the big indexes they track without buying every Little Dingbat Company in it.

That means if Little Dingbat suddenly soars, they missed it.

The best tracking funds like Vanguard come close to zero in alpha because they keep costs low and are big enough to buy even Little Dingbat. But buying Vanguard is very boring.

A fund manager wants to have high alpha and low beta. But increasingly, investors are aiming at low beta and low alpha, good tracking of whatever index is being used. They are sacrificing a chance for out-performance for lower volatility, AKA the ability to sleep well at night.

Our diversified portfolio is not aiming to beat any index, and certainly not the Russell 2000, the one it is compared to by Dow-Jones. We are willing to put up with higher volatility (beta) to achieve high returns in our growth and speculative portfolios. That means we have both high alpha and high beta. To offset that we need a couple of things: time and diversification.

You have to stay the course and not pull out your stakes just because, for example, a period of excessive dollar exchange rates is hurting all foreign securities (which produces high alpha and high beta in a www.global-investing.com portfolio.) So patience is required. Over 10 years we will do better than over 6 months.

The second thing you need is what my buddy Mayri calls Vivian's "taste for stamp collecting." You cannot put all your money on the red square or on the number 14. You have to diversify. We are more likely to buy Little Dingbat Company than even Vanguard is. Our small subscriber base gives us a chance to build positions in small caps which big funds cannot do without turning the market against them.

In a period of high beta, like we have just gone through in 2014, do not cancel your sub. Do not decide to invest in a pure red-white-and-blue rah rah all-USA portfolio. The worm will turn.

One worm that is turning now is gold. If the rise in yellow metal prices continues, your editor will achieve a 10-bagger level of return on her first holdings of the Spyder Gold ETF, GLD. Barbarous relic, my eye.

Barbarous gold-love is a problem in India. The World Gold Council reported yesterday that Q1 gold demand fell by by 1% year-over-year to 1,079.3 metric tonnes. However, demand in India’s consumer market rose 15% to 191.7 tonnes worth $7.55 mn before counting dissuasive taxes and duty and the smuggler and jeweler markup. Indian demand for gold jewelry was the only riser in a major market n Q1, as even China slipped. India mines almost no gold domestically so all the demand led to imports.

The issue as Adrian Ash spells it out, is how to get Indians to let their jewelry help their country by depositing it for its bullion value. PM Narendra Modi is keen about such a program. The difficulty is providing some sort of return on yellow metal deposits, not customary in gold markets anywhere. India could also set a guaranteed level for valuing the gold in crores of rupees when it is deposited that would apply when it is withdrawn. (Adrian produces a daily gold note on behalf of our advertiser, Bullionvault, where I keep my legal physical gold hoard. Like the GLD ETF, it is also sponsored by the gold-mining industry.)

More news from Japan, Belgium, Australia, Hong Kong, Israel, Portugal, Britain, South Africa, Ireland, Mexico, The Philippines, and the US.

Rotten Results contd.

*DeNA Co., Ltd. (JP:2432 or DNACF), the mobile Internet gaming and services firm, reported on its Q4 and FY to Mar. 31. DeNA reported quarterly revenue of ¥36.1 bn, down 9%. Its Q4 operating profit of ¥4.6 bn yen down 52%.

DeNA also reported full-year revenue of ¥142.4 bn down 21% and full-year operating profit of ¥24.8 bn down 54%. Its consolidated net profit for the quarter at ¥2.4 bn was down 56% and that for the fiscal year at ¥14.9 bn was down 53%.

The best thing to say about these numbers is that some are improving. Not all. Less good is DENA forecast for the current Q1 to June 30: revenue up to ¥37.7 bn; operating profit down to ¥3.4 bn and consolidated profit to ¥1.1 bn. In the conference call CEO Isau Moriyasu explained (their translation): "The main factor driving the quarter-over-quarter decline in revenue and operating profit is the game business. We are in between phases of launching new native app titles and have not factored in meaningful contribution from our new app titles."

He added: "Coin consumption from browser games in Japan tends to weaken from Q4 to Q1 every year and is expected to decline by around ¥3 bn q/q in Q1 FY2015. This is smaller than the decline in the same period in recent years. However, we have high expectations from our pipeline of key titles launching in Q2 and onwards, so we believe it possible for coin consumption in Japan to return to a growth trend."

Mr Moriyasu also cited ¥ 2.7 bn of expenses related to studio reorganization and downsizing of DNACF's game portfolio in the US. This is a one-time charge. He forecast that by Q3 Dena will "come close to breaking even in the West" (meaning the US).

As for last year, CEO Moriyasu claimed "Our strategic shift to native app games came to fruition in the fiscal year 2014 and we have strengthened our competitive position globally." He added: "By leveraging our core competence in large-scale mobile services, we will strive to co-create new business opportunities with key players in gaming as well as established industries in the years to come."

DNACF revised its end year dividend payment from ¥17 yen per share to ¥20, a consolidated dividend payout ratio of 17.3% of earnings. This is the new hot metric in Japan after the activist move on Fanuc.

The revenue rise from a push into international where coins bought for gaming now account for nearly 20% of these token sales, came to about $57 mn. Japanese "native applications" international protocol coin buys account for about a quarter of the total and in China they are catching on fast (along with anime cartoons) under a JV with Bandai Namco Entertainment.

Dena also signed a business and capital alliance with super-Mario Nintendo in March, now moving on Hollywood with a deal at United Artists. DENA is still working on the deal terms but it will handle the server and infrastructure side and NTDOY will do the client side. However, there will probably be more creative inputs from DNACF going forward. It also plans signups major players in games, commerce, entertainment, and even healthcare.

DNACF created a jv where it owns 67% with ZMP Inc for a driverless taxi app called "Robot Taxi" which will let people rent cars for short trips in Tokyo and later other cities. Your editor initially bought into DNACF because a Japanese female founded the company, even rarer in Japan than in sexist Silicon Valley. She is still the largest shareholder but has brought in guys to manage it.

*Old Mutual plc which reported yesterday is under pressure from UK activists and investment bankers to split off its investment management arm in Britain from its legacy business of banking and insurance in Africa, expected to result in a re-rating for ODMTY. Undoing mergers is now a trend for example at BHP Billiton. Old Mutual was downgraded by analysts at Investec to a "hold" rating today with a GBX 245.06 target price and the current price is ~229.80.

Drugged on Profits

*Galapagos NV opened up 10% on Nasdaq on its first day of trading, today. Retail investors were crowded out of the ipo because its drug development partners (AbbVie and Johnson & Johnson) and institutions loaded up on GLPG shares. We have owned this share since they hired away our former biotech maven who moved to Mechelin, Belgium, from Milan to take the job. Given this sacrifice, I figured he could spot a good company as he had done so for us for years, and loaded up on the share, until now on the pink sheets.

*This week's rise in the price of Portugal Telecom, PTGCY, appears to be related to a vote allowing its takeover by OIBR by its Portuguese noteholders. The volumes are huge on Wall St.

*Teva will present 3 allergy drugs at the American Thoracic Society meetings running till next Tues, on phase III trials of ProAir RespiClick inhaler (abuterol sulphide) and adults against bronchospasm; Anti-ILS drug reslizumab for asthma; and fluticasone propionate in a multi-dose inhaler. These are patentable drugs being developed in house, not generics. Apart from the asthma-allergy area, TEVA also is hard at work on brain and central nervous system disease drugs.

*Friday's panic reversal exit from Chinese stocks boosted shares elsewhere in the Pacific Rim, more or less at random. One big gainer was Benitec Biopharma of Australia, BTEBY, which is upgrading its ADR. It also gains from a stronger A$.

*Another big gainer was AIA, the Hong Kong insurer. HK:1299 or AAIGF. It did not gain from currency since the HK$ is fixed to ours, but nonetheless rose 3.4% today.

Heavy Industry

*The Philippines is a hot cement market, Cemex of Mexico plans to build a costly new plant there. But CRH is getting into that market more easily thanks to its likely takeover of assets Lafarge of France will have to divest to be allowed to merge with Holcim of Switzerland. CRH is buying former Lafarge assets in 3 Filipino companies, Lafarge, Luzon, and Republic as part of a $7.34 bn investment. Now it has a local partner and financier, Aboitiz Equities, the arm of a local Cebu oligarchic clan which will also later also into cement from Holcim and probably in other Pacific Rim countries. This is a divestiture for the Aboitiz family which originated in the Basque country. Once the complexities of the merger and divestitures are revealed CRH may announced other financial partners.

Trade Alerts

*Since my ACAT from e-trade to Interactive Brokers remains in abeyance of exotic, I sold another 25% of my holdings in the PowerShares US$ Bull ETF, UUP, at $24.513/sh, ~50% gains.

*I put the money into a Royal Bank of Scotland pref trading below par, RBS.pr.E. RBS preferreds are likely to remain out longer as state-controlled UK bank is again caught up the US regulatory thicket for misbehavior, for having resumed foreign exchange rate-fixing collusion despite a 2-year-old settlement with US regulators promising not to. The main baddie was UBS but Barclays and two US big banks also fiddled FX. If you want an argument against govt control of banks, RBS provides it. It was 82% nationalized to save its depositors in 2008.