5 Ways to Get Through Tough Times as an Effective Leader
Great leaders are defined by tough times; this is when they either lean into their inner toughness for the grit they need to keep moving ahead, or become victim to circumstances they have not learned to control.
One of the greatest leaders of all time was Genghis Khan. He conquered substantial portions of Central Europe and China to create the largest empire in history.
Temujin was born into a nomadic Mongol tribe in 1162. When Temujin was 12 years old, his father was killed and the family left to die in the harsh Mongolian winter. Temujin and his family survived, but the lessons he learned evolving from manhood at the age of 12 into the warrior known as Genghis Khan, are timeless.
As I read his story, I was struck by how human nature never changes.
The disciplines used by Genghis Khan created a great leader who had the mental toughness he needed to prepare for the unknown and embrace the unexpected. They are the same disciplines great leaders need today to face unexpected turns in the marketplace, compete against new competition, and embrace changing technology.
Great leaders are effective, no matter the challenges they face. Here are 5 ways they get through tough times:
1. Great Leaders Focus on a Clear Goal
Genghis’s father was the leader of his Mongolian tribe but was assassinated by a rival. Genghis and his family were then left to starve in the cold winter. Genghis had one goal in mind as he developed the skills necessary to become a great leader in those bleak months and he never lost focus of that goal—to stay alive.
My goal was to become an FBI agent. Albeit very different circumstances, both Genghis and I dug deep to find the passion behind our goals; it’s what kept us going.
How To Make It Work For You: You owe your team a clearly defined goal worthy of dedicating their efforts. You also need to demonstrate that you are willing to do whatever it takes to make it happen. Goals can shift over time so it’s important to measure progress on a regular basis.
2. Tie That Goal to a Purpose
While goals can shift, our purpose never does. Genghis had one purpose in life—to see the enemies who killed his father brought to justice. Even though he amassed the largest empire in history, he never became distracted by a desire for possessions or wealth as he became more powerful.
Genghis’s wounds drove him; most of us have wounds that drive us. What is important is to learn how to channel the passions that run the deepest toward achieving something we never thought possible.
How To Make It Work For You: We all come out of childhood wounded; it’s where we begin to develop the character that shows itself in great moments as adults. You have a choice: you can piss and moan about how life has handed you unfair circumstances, or you can take the bit between your teeth and convert your wounds into strengths. Grit Up and develop mental toughness.
3. Build Up Endurance
As a boy, Genghis trained by running up and down a mountain with a mouth full of water. Over time, he got to where he could return to the starting point and spit the entire mouthful on the ground. This was a triumph that signaled he had developed the aerobic strength to run up and down mountains breathing only through his nose.
The FBI Academy had new agents run around a basketball court with a medicine ball in one hand and sweaty towel in the other. At the time, I failed to see how building endurance would make great leaders.
In hindsight, I understand they are inexorably interlinked. For both Genghis and myself, we were pursuing goals that were truly important to us.
How To Make It Work For You: Building endurance requires that you find a purpose that has value and meaning for you; persevere and do not give up, believe that you are giving it your best, and have confidence that you are in control of yourself and what happens to you.
4. Stretch Toward Peak Performance
Genghis Khan used archery to conquer his empire. Drawing a bow and arrow from the back of a galloping horse and accurately hitting the target is not easy. Genghis mastered his art by doing two things:
1) He developed the power to heave the thick bow back so he could aim his arrow. The Mongolian bow was covered with so many layers of sinew that it had the pull of approximately 160 pounds.
2) He understood the movements of the horse he was riding. When a horse is galloping, there is a moment when the horse is air-borne and all four hooves are off the ground. In that split-second, as he sat in his saddle and sailed through the air in smooth flight, he could shoot his arrow with enough accuracy to hit the target.
How To Make It Work For You: Genghis Khan honed his skill with the bow and arrow. In the same way, you and I can build our mastery by pushing the boundaries of our skill levels. Experts agree that your grasp should exceed your reach by about 4% if you want to achieve peak performance.
5. Develop a High-Functioning Team
Genghis Khan took the time to understand the thinking and movements of his chosen partner—in his case, a horse. He studied the movements of the animal and synchronized them with his own so they functioned as one fluid and powerful weapon.
In this modern age, you and I work with other partners in business and life, and if we plan to be great leaders, we will need to understand the way they think so we can enable them to perform at optimal levels—especially during tough times. We need to anticipate their reactions as much as we need to anticipate our own.
How To Make It Work For You: Spend time understanding what makes your team members successful and what makes them fail. Don’t stop there; help them understand as well so they can start thinking ahead of time about how they will react in tough times. This will free up both you and team to spend your energy adapting quickly in crucial moments.
Sizing up Strategic Beta
Interest in strategic beta ETFs is rising. A few simple guidelines can help investors pick from among the often-bewildering number of options.
The number of strategic beta ETFs has grown at 20% a year, consistently in good markets and bad, since the year 2000. With good reason: Strategic beta ETFs offer a more thoughtful passive option than cap-weighted indexes—and they can do so with a more transparent process and lower fees than actively managed funds.
Bright future, dim past
All well and good, but how should investors assess any particular strategic beta ETF? Close to 40% of these funds have been in operation for less than three years. This lack of an established track record can make it hard to validate their claims. ETF sponsors may try to make up for that shortcoming with back testing, running simulations of holdings they might have had against actual past market performance, but that has its limitations:
Back testing doesn’t always account for fees, liquidity or transaction costs.
Back tests are “selection biased”—that is, back testers have a tendency (conscious or not) to engineer positive outcomes. Live outcomes are therefore likely to be inferior.
Too great a focus on recent history can lead to “driving in the rearview mirror.” While an index or ETF may solve the problems of yesterday well, an investor’s focus should instead be on solving the potential problems of tomorrow.
Three steps to an informed judgment
Because the indexes tracked by strategic beta ETFs are by design somewhat exotic, effective assessment of them calls for some digging:
- Investors first have to understand who the index designer and asset manager are (they may not be the same people). They should have a clearly expressed investment philosophy and the expertise to enact it in practice.
- The properties of the portfolio should reflect the investment philosophy. Not only does the transparency of ETFs allows examination of the holdings to ensure that this is the case, it also measures such as active share relative to a cap-weighted benchmark or turnover can indicate whether an ETF is performing as designed.
- Performance can also be used to confirm that an index is doing its job. While short-term results shouldn’t be given too much sway, the index designer should be able to explain when and why an index will perform and when it might not.
One key aspect of performance shared with traditional passive management is tracking error. Like earlier cap-weighted index tracking funds, strategic beta ETFs should have minimal tracking error to their own indexes. Beware, though, the tracking error to the benchmark can be large and dynamic, it is by this differentiation that strategic beta adds value.
Made to measure
Strategic beta does not defy analysis, despite its novelty. Indeed, it has a lasting advantage over standard active manager due diligence. Strategic beta, after all, is rules-based. What an investor sees in straightforward, well thought-out index composition rules is what the investor will get. In that sense, strategic beta is relatively immune to the personnel changes, style drift and index hugging that can challenge actively managed mutual funds.
Learn more about ETF due diligence here.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purpose. Any examples used are generic, hypothetical and for illustration purposes only. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor’s own situation.
Opinions and statements of market trends that are based on current market conditions constitute our judgment and are subject to change without notice. These views described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Past performance is no guarantee of future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. ETF shares are bought and sold throughout the day on an exchange at market price (not NAV) through a brokerage account, and are not individually redeemed from the fund. Shares may only be redeemed directly from a fund by Authorized Participants, in very large creation/redemption units. For all products, brokerage commissions will reduce returns.
J.P. Morgan Asset Management is the marketing name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. J.P. Morgan Exchange-Traded Funds are distributed by SEI Investments Distribution Co, One Freedom Valley Dr., Oaks, PA 19456, which is not affiliated with JPMorgan Chase & Co. or any of its affiliates.
For additional disclosure
For a longer discussion, please see our recent publication Strategic Beta’s due diligence dilemma (J.P. Morgan, April 2017).
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