10 Reasons Why Losing Does Not Make You a Loser
My son came home from school last week feeling down. I asked him what was wrong and he told me he was selected as a judge for the school gymnastics competition that was held earlier in the day. I didn’t understand; it sounded like a fun way to spend the afternoon. What was the problem?
“I felt bad for the people who didn’t get an award or even a sticker. They tried really hard but they just weren’t as good as the people who won.”
Interestingly, the week before, he and his friends participated in our town’s Wearable Arts competition. Wearable arts are handmade art creations in a wearable form that push the boundaries of creativity. There were some truly spectacular creations in this year’s competition.
Now, for a moment, imagine the only all male team was a group of 5th-grade boys. They used cardboard, spray paint, most of my tin foil and all of my disposable cooking pans to create from their hearts and imagination. After they had worked tirelessly for the entire term with no help from parents or teachers, they were proud of their entry.
Then came the judging…
No award, no highly commended; they were crushed.
They put in their best effort and lost. Most adults know that’s a reality of life, but it’s still is a painful lesson no matter how many times the universe helps you learn it. When you do your best and put yourself out there, it does more than sting when you lose; it hurts no matter what your age.
After judging the gymnastics competition my son now had a new life lesson:
Even when you lose, it doesn’t make you invisible. There are people out there who see you and appreciate your effort even if they never tell you. They’ll also remember you.
I told him:
You had the courage to do something; others didn’t. Just like the kids in the gymnastics competition.
You all enjoyed the process, and that matters.
Even when you don’t win, people respect that you’re IN IT. You’re trying, and that’s never worthless.
In that moment, I swear I could see the lightbulb above his head start to glow. There was no shame in not winning wearable arts or the gymnastics competition. He was proud of everyone who tried, but they simply weren’t the best. It didn’t change the way he saw them as human beings. There were no scarlet “A” letters handed out to the people who lost or crowns for the winners. Despite how he felt and what he told himself, he was not a loser and if you fail, you’re not a failure.
I think we all know what it’s like to lose when you wanted to win.
Maybe it was a promotion or a big sale that you were inches away from closing. Or perhaps you didn’t get an offer for a new job or your small business was a flop and fold. Every time you lose, no matter the circumstance, it hurts because when you go all in, no holding back, it feels personal. You’ll second guess and wonder where you went wrong or if you could have done more. Unfortunately, or maybe it’s fortunately, time only moves forward.
Ten Reasons Effort is Never Worthless – Even if You Lose
You set your bar.
You now have an opportunity to get better.
You know and don’t need to waste time wondering “what if.”
You can’t win if you don’t put yourself out there and try.
You inspired others who were too afraid today to give it a go in the future.
You raised your hand, and people noticed.
You challenged yourself.
You were courageous.
You can use what you learned to reach higher and go further next time.
You cared enough to go all-in.
A gold star doesn’t identify you as a person of value, and the road to success is paved with far more losses than wins. Be grateful you’ve got one more behind you and are one closer to where you want to go.
What’s your experience with trying and falling short?
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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