Finding Your Field Guides: A Key to Entrepreneurial Success
Written by: Jon Sabes, CEO
Being an entrepreneur can be rife with challenges. It’s no wonder: you’re in the business of creation—of building something physical from an abstract idea. And no matter how innovative or timely or just plain “perfect” that idea may be, transforming your vision into reality is no easy task. One key to success is knowing who to ask for help. I call it “finding your field guides.”
Two of my passions—aside from my business—are endurance athletics and adventure travel (for more on this, check out my blog on Creative Destruction). Whether I’m running a race or climbing a mountain, the one thing that keeps me on track is the continuous direction and encouragement from coaches or guides. In fact, one might say it is even foolish to attempt these activities without trained, knowledgeable help. And yet every day, I see entrepreneurs plugging away at building a new company with little guidance at all. No matter how smart a person may be, and no matter how brilliant their idea, working solo is just as foolish. Here’s why:
Unforeseen challenges are a given.
A common misconception about starting a business is that strong preparation is all an entrepreneur needs to succeed. A well written business plan. A great education. Industry experience. Whatever. But just like a long-distance race, preparation is just the starting point. Throughout the race, you need a source of support, inspiration, and guidance to help through the challenging moments, and keep you moving until you reach the finish line. Building a business is similar. You are going to get challenged. And in those moments, you are going to need encouragement, guidance, and perspective. A trusted guide can give you the help you need when challenges threaten to derail your success.
You don’t have all the answers!
Picture this: you’re leading your team up a high, remote mountain. You’ve never been there before, and when you arrive at the saddle of a high pass, there are three paths to choose from. One path leads to a dangerous and potentially deadly cliff. Another descends into a valley filled with flesh-biting flies. Another passes through a challenging rock crag, but eventually winds its way down to a picturesque pool, complete with a waterfall and a stunning rainbow. How do you know which way to go? A guide who has been down these paths before knows what lies ahead. Your guide’s experience can save you and your team time, energy, and resources to be sure you not only survive, but thrive.
Multiple perspectives drive creative solutions.
Working in a vacuum rarely results in the greatest ideas. By seeking help from a variety of sources, you can gain multiple perspectives on the same problem, and then filter the information you receive to form your own creative solution. If the advice doesn’t fit, let it fall to the side. If it does, grab it and build on it. Look for mentors who have years or even decades of experience in the industry or specialty you are pursuing. Find people who mesh with your own way of thinking, and who challenge you constantly—without fear of retribution. These are your field guides for your personal journey.
The good news is that field guides are everywhere, which means all you have to do is start actively seeking the help and direction you need. Here are some great places to look:
- LinkedIn and other business networks: The great thing about LinkedIn is that the platform is focused solely on the business community. If you’ve built a strong network over the years, online or off, review your contacts and make a list of potential mentors. If you can find someone in your local community and can meet face to face, even better. Next, reach out and ask for their help. If they are willing to advise you —and most people will be if you just have the courage to ask—their guidance will be worth its weight in gold.
- Books: Look for books by entrepreneurs who have achieved success and share your values as a business leader. I’m constantly seeking out new inspiration, and my three recent favorites are Cheat to Win: The Honest Way to Break All the Dishonest Rules in Business (Bob MacDonald); Shoe Dog: A Memoir by the Creator of Nike (Phil McNight), and Steve Jobs (Walter Isaacson).
- Audio Books and Lectures: Don’t let your busy schedule keep you from soaking up the information you need to win. Whether you’re driving or flying, look for audio books and lectures to enrich your personal and professional development. Three of my favorites are Napoleon Hill (In His Own Voice), Brian Tracy (The Psychology of Achievement), and Grant Cardone (Be Obsessed or Be Average). These authors will give your mind the nourishment, inspiration, and encouragement it needs as you move along the journey to success.
- Historical Biography Videos: Look for videos from producers like the American Experience series that chronicle the stories of historical figures such as Thomas Edison, Henry Ford, and Nikola Tesla. Their stories and struggles are sure to amaze you and inspire any entrepreneur.
At GWG, my own journey of creating a finance company hasn’t been absent of challenges. From the credit crisis and regulatory scrutiny, to educating broker-dealers on how our product works, the challenging rocky crags of climbing the mountain seem to be around every corner. Luckily, I’m not alone as we navigate our path forward; our entire team is passionate about what we’re doing, and we’re in it for the long term. To help keep me on track to make continuous progress toward achieving our goals, I constantly turn to my own trusted field guides for encouragement, insight, and inspiration just when I need it most.
Building your business is a long, hard endurance race.
Don’t try to go it alone. Find and listen to field guides that work for you. Listen to their guidance, and allow them to help pick you up when you’re down and keep you moving forward through your most challenging moments. And most importantly, remember this: No journey is over until the moment you give up.
Alternative Beta Strategies: Alpha/Beta Separation Comes to Hedge Funds
Written by: Yazann Romahi, Chief Investment Officer of Quantitative Beta Strategies, J.P. Morgan Asset Management
A quiet revolution is taking place in the alternatives world. The idea of alpha/beta separation has finally made its way from traditional to alternative investing. This development brings with it a more transparent, liquid and cost-effective approach to accessing the “alternative beta” component of hedge fund return and a new means for benchmarking hedge fund managers.
The good news for investors is that the separation of hedge fund return into its components—rules-based alternative beta and active manager alpha—has the potential to shift investing as we know it. These advancements could democratize hedge funds and, at long last, make what are essentially hedge fund strategies available to all investors—even those who aren’t willing to hand over the hefty fees often associated with hedge fund investing.
A benchmark for alternatives
With respect to traditional equity investing, we have long accepted the idea that there is a market return, or beta—but this hasn’t always been the case. Investors used to assume that to make money in the stock markets, one needed to buy the right stocks and avoid the wrong ones. The idea of a market return independent of skilled stock selection seemed ridiculous to most market participants. Yet today, we would never invest in an active manager’s strategy without benchmarking it against its respective beta.
Interestingly, hedge fund managers have been held to a different standard. Investors have been much more willing to accept the notion that hedge fund strategy returns are pure alpha, and that their investment returns are based entirely on the skill of the fund manager. That notion explains why investors have been willing to accept a “two and twenty” fee structure just to access what has been perceived as one of the most sophisticated and powerful investment vehicles available.
In thinking about the concept of beta, consider its precise definition—the return achievable by taking on a systematic exposure to an economically compensated risk. In traditional long only equity investing, the traditional market beta has been further refined as a number of other risks have been identified that are commonly referred to as “strategic beta.” These include factors such as value, momentum, quality and size. But no one ever said that these risk factors must be long-only.
Over the past decade, as more hedge fund data became available, academics began to disaggregate hedge fund return into two components: compensation for a systematic exposure to a long/short type of risk (alternative beta), and an unexplained “manager alpha.” What they found is that a significant portion of hedge fund return can be attributed to alternative beta. That fact has turned the tables on how we look at hedge fund return. With the introduction of the alternative beta concept, hedge fund managers will have to state their results, not just in terms of total return, but also as excess return over an alternative beta benchmark.
Merger arbitrage—an alternative beta example
The merger arbitrage hedge fund style can be used to illustrate the alternative beta concept. In the case of merger arbitrage, the beta strategy would be the systematic process of going long every target company, while shorting its acquirer. There is an inherent return to this strategy because the target stock price typically does not immediately rise to the offer price upon the deal’s announcement. This creates an opportunity to purchase the stock at a discount prior to the deal’s completion. The premium that remains is compensation to the investor for bearing the risk that the deal may fail.
Active merger arbitrage managers can add value by choosing to invest in some deals while avoiding others. Therefore, their benchmark should be the “enter every deal” strategy, not cash. In fact, the beta strategy explains the majority of the return to the average merger arbitrage hedge fund. And it doesn’t stop there. Other hedge fund styles that can be explained using alternative beta include equity long/short, global macro, and event driven. Note that the beta strategy invests in the same securities, using the same long/short techniques as the hedge fund strategy. The difference is that the beta strategy is a rules-based version that can become the benchmark for the hedge fund strategy. After all, if a hedge fund strategy cannot beat its respective rules-based benchmark (net of fees), an investor may be wiser to stick to the beta strategy.
Implications for investors
What does all this mean for the end investor? Hedge funds have traditionally been the domain of sophisticated investors willing to pay high fees and sacrifice liquidity. Alpha/beta separation in the hedge fund world means that investors can finally choose whether to buy the active version of the hedge fund strategy or opt for the passive (beta) version. Hedge fund strategies can be effective portfolio diversifiers. Now, through alternative beta, virtually all investors can access what are essentially hedge fund strategies in a low cost, liquid, and fully transparent form. For investors who haven’t had prior access to hedge funds, this could be welcome news. Not only can investors look at an active hedge fund manager’s strategy and determine how it has done compared to the systematic beta equivalent, they can also invest in ETFs that encapsulate these systematic strategies.
When looking at one’s traditional balanced portfolio today, there are plenty of questions around whether the fixed income portion will achieve the same level of diversification it has provided in the past. After all, with yields still low, there is little income return. Additionally, the capital gains that came from interest rate declines are likely to reverse. With fixed income unlikely to adequately fulfill its traditional role in portfolios, there is a need to find an alternative source of diversification. This is where alternative strategies may help. For investors seeking to access diversifying strategies in liquid and low-cost vehicles, alternative beta strategies in ETF form are one option.
Looking for an alternative to enhance diversification in your portfolio?
For investors looking to further diversify their overall portfolio, JPMorgan Diversified Alternatives ETF (JPHF) seeks to increase diversification and reduce overall portfolio volatility through direct, diversified exposure to hedge fund strategies using a bottom-up, rules-based approach.
Learn more about JPHF and J.P. Morgan’s suite of ETFs here.
Call 1-844-4JPM-ETF or visit www.jpmorganetfs.com to obtain a prospectus. Carefully consider the investment objectives and risks as well as charges and expenses of the ETF before investing. The summary and full prospectuses contain this and other information about the ETF. Read them carefully before investing.
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