TEN CHARACTERISTICS OF GREAT LEADERS

Leaders are known by their behavior, not job titles. Have you ever noticed that the best leaders are often not the people with the highest level jobs? Effective leadership is based in behavior, not in job title. A leader is someone who motivates guides, encourages, and serves, no matter what job title he or she holds. If you want to become a more effective leader, you have to master these critical behaviors. Look around and notice the people who are perceived as strong leaders in your environment. What behaviors do you observe? How do they interact with others in such an effective way?

Talk with the leaders you identify and ask them for their insights, looking to them as a mentor for your own leadership development. Leaders focus on service to others. Good leaders focus on serving the needs of others, particularly the people on their team. They identify and meet the needs of their team members, because they know that when each member of the team has what he or she needs to succeed, success is much more likely to occur. They may stay late at the office one day if it allows a team member to leave early to attend a child's soccer game, or they order pizza for lunch when the team is under pressure to complete a project. The definition of "needs", though, is much broader than you might think.

For instance, one person may need regular contact with the leader to check progress and gather feedback, while a different person might do best when allowed to work independently. Or, some people do their best work when there is a social aspect to the workplace, so a good leader might organize a monthly potluck lunch to create opportunities for socializing. A good leader knows how to identify and fulfill needs, even if they are unusual or different. Leaders are accountable. You will never hear an effective leader blaming anyone or anything when something goes wrong. Good leaders know that blame and excuses are counterproductive, and they only serve to damage credibility and trust within a team. Instead, effective leaders are accountable for events and results.

They stand up and take responsibility for problems and issues, and then set about correcting them. The best leaders know that when they are accountable their whole team benefits from increased trust and respect. Leaders go beyond what is required. Do you know anyone who regularly goes beyond the minimum requirements of whatever it is they are doing? This person is the one who remembers a team member's birthday, offers to pitch in and help when a deadline looms, or makes the extra effort to access expertise or resources that might help resolve an issue. Going beyond what is required is more than just doing nice things for others.

It is all about looking for opportunities to foster the development of others, whether it means spending extra time with a poorly performing employee or counseling an employee who is not fully supporting other team members. Leaders build trust. A good leader builds trust, both with others and among others. Confidential conversations stay confidential and teamwork is fostered throughout all activities. When a good leader makes a promise or agrees to consider something, he or she follows through - every time, on time.

Even if the ultimate answer is "no", the fact that the leader can be counted on to fulfill commitments fosters strong trust. The way trust is developed is also a good indicator of a good leader. Intense seminars or retreats labeled as "team building" may be used, but more often, it is the many small things each day that build trust. It is easy to talk about trust in a two day workshop, but it is hard to follow through and live that way every single day. Those who do are among the most effective leaders you will find. Leaders are creative. Process, procedure, and rules are important in any organization, but an effective leader knows that creativity is just as important. Sometimes the best way to accomplish a goal is to "do something different" and leaders know when to encourage and foster that kind of creativity.

Good leaders are also creative in terms of how they lead their team. Staff meetings, performance reviews, professional development, and the like are all part of the equation, but so is stepping outside of the usual to find a creative way to get the same (or better) results. Creativity means finding ways to get things done, even in the face of obstacles or doubt. Leaders have integrity. In a large Midwestern state, there is a county sheriff who epitomizes the concept of integrity in a leader. He was driving along the road one day when he drove past a school bus that was pulled over with its lights flashing.

It was inadvertent on his part; he just wasn't paying attention. The easiest thing to do would have been to continue driving and not bring it up to anyone. But that's not what the sheriff did. He knew he had committed a serious traffic violation, so when he wrote himself a ticket. The fine was over $200 and he lost several "safe driver" points off his insurance, but he cared enough about integrity to enforce the appropriate consequences on him and communicate what he had done to the rest of his staff so they could learn from his mistake. That's integrity, and that's effective leadership.

Leaders have fun. Life is too short to be boring and drudgery, and effective leaders know it. They are not silly or frivolous, but neither are they stuffy and formal. A good leader can inject an element of fun into nearly anything, making it more tolerable for everyone involved. For instance, a leader might declare "Tropical Friday", putting up decorations and encouraging team members to where tropical shirts on that day. Or, to start off a staff meeting the leader might set aside ten minutes to let everyone learn how to juggle. Regardless of the specific tactic used, effective leaders understand that sometimes laughter is indeed the best medicine for their team. Leaders value differences. Effective leaders know that different perspectives and opinion are crucial to the success of a team and/or an organization.

They value these differences and allow them to be communicated so that there can be healthy discussion. The most creative solutions to problems often come from combining elements of divergent opinions. Quite often, the people whose opinions are in the minority are best able to challenge status quo thinking and prevent a team from falling into the trap of group think or self-deception.

A good leader knows to take advantage of this reality and use it to foster productive conflict that ultimately leads to the best solutions. Leaders are excellent communicators. There is no such thing as an effective leader who is an ineffective communicator. Those two characteristics simply cannot coexist with each other because one of the primary requirements to be a good leader is strong communication skills. Written, verbal, and non verbal communications are all critical to a leader's ability to motivate and guide a team. However, a good communicator is not necessarily a good leader.

You can probably think of at least one person you have encountered in your life who could talk circles around others but could not lead at all. To be an effective leader requires strong communication skills and the ability to inspire, encourage, and facilitate others to accomplish their goals.

How to Set and Achieve SMART Goals

A common acronym in goal setting is the so called SMART goals, but what does it really mean and what is so smart about them? The SMART acronym is used to describe what experts consider to be "good" goal statements because they contain most of the essential ingredients.

The SMART acronym itself has several different variations depending on who you ask. However, I think it is useful to look at all of them because it provides a well-rounded goal statement. S Specific & Significant M Measurable, Motivational, Methodical & Meaningful A Action-oriented & Achievable R Realistic & Relevant T Time-bound & Tangible Writing SMART Goals Let's take a closer look at each of these properties. Specific - Your SMART goal statement should be a clear and specific statement of what you want.

The main reason is that your brain behaves like goal-seeking mechanism, similar to a precision guided missile. As these missiles fly, they continually make small adjustments and corrections to their trajectories to realign themselves to their target. Your brain also works in a similar way. Dr. Maxwell Maltz, author of the classic Psycho-Cybernetics, said that human beings have a built-in goal seeking "success mechanism" that is part of the subconscious mind. This success mechanism is constantly searching for ways to help us reach our targets and find answers to our problems.

According to Maltz, we work and feel better when our success mechanism is fully engaged going after clear targets. All we have to do to use this mechanism is to give it a specific target. Without one, our success mechanism lies dormant, or worse, pursues targets we didn't consciously choose. When your target is vague or ambiguous, your success mechanism can become confused and either shut down or go after the wrong target. Significant - Significant goals are the ones that will make a positive difference in your life.

If a goal is not significant, why are you even contemplating it? Is it really your goal? Measurable - There is an old saying that says "what gets measured gets done." Making your goal measurable helps you see your progress, recognize if you are moving in the right direction, and see how far you still need to go. Some types of goals, like saving a certain amount of money each month, or reading 100 pages per week, are very easy to measure, while other goals aren't really measurable directly. For example, if your goal is to improve your relationship with your significant other, how do you measure it?

One option is to use some sort of rating. For example, you could say that your relationship is a 6 and your goal is to make it an 8. The problem is that these types of ratings are very subjective, can change from day to day, and don't really give you very good feedback. A better option is to focus your goal on specific actions you can take that will help you achieve your overall objective. For example, if you want to improve your relationship, your goal might be to practice the "4 small steps to a better relationship" every day. This is something that you can easily measure.

Even though measurable goals are very important, I think it is equally important to remember your original objective. Otherwise, it is easy to lose yourself in your goals and forget the reason you set them in the first place. Motivational - Goals need to be motivational. They need to inspire you to take action and make progress. One of the best ways to make goals motivational is to ask yourself why you want to achieve it. Methodical - Methodical means that you need to think about a strategy for how you are going to accomplish your goal. You don't need to know all the details at first, just start with a general plan.

Meaningful - Your goals should be meaningful to you. This just ensures that they are really your goals, rather than your parent's goals, or society's goals. Action-Oriented - This means your goal should focus on actions you can take that are in your direct control. It's OK to have goals whose outcome you can't directly control, as long as you are clear about the actions you need to take to do your part in the process. Achievable - This means that the goal should be achievable. It doesn't mean easy, just that you can have a reasonable expectation of achieving it.

For short-term targets, your probability of achieving the goal should be 80% of higher. Longer term targets could be more of a stretch and have less probability of success. For your 5-10 year vision, you can go for something really big, even if you currently have no idea how to accomplish it. Realistic - Realistic is another word for achievable. Again, this doesn't mean that the goal needs to be easy. Realistic also means that the actions associated with your goal are things that you can do. For example, if your goal requires you to spend 3 hours at the gym each day, that may not be a very realistic assumption given your present situation and lifestyle. Relevant - Good goals are relevant to you and to your life. Relevant goals are meaningful and significant; they can make a difference in your life.

If a goal is not relevant to you, then you need to ask yourself why you are even contemplating it. Time-Bound - For goals that have a natural ending (like outcome goals), establishing a clear deadline for them adds an element of urgency and motivation. Trackable - All goals should be trackable so you can see what your progress is, either in terms of results you are experiencing, or actions you are taking. Tracking your goals helps you determine if you are going in the right direction and make any necessary adjustments along the way.

The best SMART goals are focused, specific, short-term targets that involve things that are under your direct control. This is what makes goals such powerful achievement tools, but it is also what can limit them. If you only use SMART goals, you run the risk of losing sight of the big picture, the reasons why you are setting goals in the first place. As Stephen Covey aptly points out, SMART goals can help you climb the ladder of success step-by-step, only to find that it is leaning against the wrong wall! That's why you also need longer-term dreams/goals that may not be SMART, but that give you overall direction, motivation, and guidance. It's when you combine these two types of goals that you can really make tremendous progress.

EXCHANGE-TRADED FUNDS

Exchange-traded funds (ETFs) are like index mutual funds that behave like stocks. They trade all day on recognized stock exchanges such as the American Stock Exchange, and some trade during extended hours. These funds are not actively managed; they are like index funds that are passive.

They replicate an index, such as the S&P 500 index or a growth stock index, without trying to outperform that index. The trustee updates the holdings every few seconds to keep the net asset value of the ETF in line with the market. This is a lot of updating, so you obtain better tracking results with a smaller index like the Nasdaq-100 than you do with a large one such as the ONEQ that tracks every Nasdaq stock. As with any trust, there is a custodian who holds the securities that the trustee buys.

There is a lot of free education about ETFs on the Internet now that the public has joined hedge funds in trading these instruments. Nuveen Investments has a web site, ETFConnect, at www.etfconnect.com; and, as usual, Yahoo.com has extensive information on this popular new trading vehicle. Exchange-traded funds are important to us for two reasons. First, they provide a way for our model portfolio to invest in two potentially lucrative assets: the Nasdaq Composite index and gold bullion.

There is no Nasdaq index fund and there is no convenient way to trade gold. Exchange-traded funds are the only way to put these two investments into a real portfolio. Second, they expand our options for sector investing. Both functions are equally important to our model portfolio. Before we examine the details of ETFs, however, let us inject a little Wall Street wit. Nicknames for some of the first ETFs reflect this industry’s penchant for dry humor. The first ETF appeared in 1993 with the objective of replicating the total return of the S&P 500 index.

The name of the trust is Standard & Poor’s Depositary Receipts (SPDR). Its stock symbol is SPY, and it quickly earned the nickname “spider.” Newspaper advertisements for this fund, or trust, featured a spider building a web of financial security. It is the same with the first ETF for the Dow Jones Industrial Average. The symbol is DIA; the nickname is “diamonds,” and the advertisements include gemstones. Vanguard, which started the indexing trend with their family of mutual funds, created a group of ETFs called Vanguard Index Participation Equity Receipts (VIPERs). The Nasdaq-100 ETF has the symbol QQQQ and the nickname “cubes.” Wall Street loves nicknames.

EQUITY ETFS Standard & Poor’s Depositary Receipts offer a convenient way to implement the trading decisions generated by our model portfolio. Each SPDR owns all 500 of the stocks in the S&P 500 index in their market capitalization weight. We can trade the SPDR all day and into extended hours; we can buy and sell options on it; and we can leverage it in the futures market. There is a price for all this flexibility; your broker will still charge a commission when you buy any ETF. If you are charged about $30 and you are investing less than $30,000, you are better off in an index fund directly from Vanguard. Larger investments, obviously, benefit from economies of scale in trading commissions.

Vanguard does not, however, offer a mutual fund that replicates the 3,000 stocks in the Nasdaq Composite index. This index is one of the investments that gave us outstanding returns in our model portfolio, but until 2003 there was no way to buy that index. The only way to capture all of the Nasdaq stocks in one trade is to buy the Fidelity Nasdaq index fund called the ONEQ. Its management fee of about one-half of 1 percent causes it to underperform its benchmark a little, but we finally have a way to invest in the Nasdaq Composite index. Other equity ETFs track a myriad of sector indexes that help us with our sector rotation investing and our selection of individual stocks. Index ETFs are true index funds as opposed to the sector mutual funds.

Those sector funds may hold only 80 percent of their assets in their sector, but ETF’s have as much money as possible invested as a mirror image of their index. Because exchange-traded funds are truly passive, many of them have lower fees and better tracking results than traditional sector mutual funds. The new exchange-traded funds offer hundreds of ways to track indexes in all of our asset classes. They also include the four styles: large and small capitalization and value or growth stocks. Then, of course, there are ETFs offering indexes of blended styles. FIXED-INCOME ETFS Fixed-income ETFs fall into two categories: international and domestic. Barclays Bank is the trustee for a family of foreign fixed-income ETFs that allows investors to choose among several points along the yield curve. Like a traditional bond mutual fund, an ETF will never mature; so investors are just choosing whether they want short-, intermediate-, or long-term investments.

In effect, they are buying perpetual bonds of a particular duration. Goldman Sachs acts as trustee for an ETF that mirrors its corporate bond index, and Lehman Brothers is the trustee for several U.S. government security funds. These funds may be one of an investor’s better opportunities to get institutional prices for bonds. REAL ESTATE ETFS The fund selector on Yahoo.com identified four real estate investment trust ETFs. Each one tracks an index for different parts of the domestic REIT market.

The oldest one is the iShares Dow Jones U.S. Real Estate ETF that came out in 2000 when the yield curve inverted. The fund went from $55 per share at inception to $123 per share four and a half years later and earned an average annual return of 20 percent. As you know, the stock market lost 20 percent during those four years. Whoever made that new product decision at Dow Jones probably uses the same yield curve analysis that you and I do. GOLD BULLION ETFS Gold ETFs are one of the few ways that people can invest in gold bullion near a price that is usually available only on an exchange. These ETFs buy gold bullion and store it in a vault. This is very different from gold mutual funds that own shares in mining companies but do not own the gold itself. The two investments behave quite differently during a crisis. Mining companies trade like any other stock when investors panic and sell equities indiscriminately.

At a time like this, gold stocks decline along with all the others. The physical commodity of gold, however, often provides a safe haven during uncertain times and makes money when stocks crash. The first gold bullion ETF appeared in November 2004 and attracted a phenomenal $1.3 billion in assets during the first two months. This gold ETF, StreetTracks Gold Shares, uses the symbol GLD. Unlike most ETFs, it trades on the New York rather than the American Stock Exchange. Yahoo.com shows two performance numbers for each ETF: that of the ETF itself and that of the index it replicates. Investors can see how well their fund is doing its job of tracking its benchmark, and StreetTracks Gold Shares appears to lag the performance of gold by about one-half of 1 percent.

This discrepancy is probably due to the cost of storing the gold. Owning an ETF may be the cheapest way to buy and store gold because economies of scale allow the trust to buy gold near the price on a major exchange, such as the COMEX in New York, and spread the storage costs among so many investors. Now that we have investment vehicles that represent gold on the COMEX and the Nasdaq Composite index, we can use them in our model portfolio instead of cash and the S&P 500 index.

For the sake of simplicity, however, we will use our usual trade dates rather than buying gold when the 10-year, three-month yield spread exceeds 10 percent. We will start after 1973 when the price of gold was allowed to fluctuate (see Table 1). All of our returns look better with our new starting date; even the S&P 500 index improves a couple of percentage points compared to previous graphs. The more aggressive equity investment, the Nasdaq index, provides one-third more return even without active management; including dividends on the larger index would have closed this gap a little. As Figure 1 shows, trading two aggressive instruments, Nasdaq and gold, more than doubled the return of the unmanaged S&P 500 index.

The dollar amounts of the three portfolios are vastly different because of the impact of annual compounding at different rates (see Figure 2). The returns might have been even stronger if we had used foreign currencies. FOREIGN CURRENCY ETFS Foreign currency ETFs are similar to international equity index funds except that they may own stocks in a global index. There are many global indexes, and the term includes the United States. If your objective is to own nothing but foreign currencies, make sure that your ETF does not include U.S. investments. The web site ETFConnect is one of the few that allow you to search their databases by investment objective, and a search for global investments found 37 funds matching that description.

The difficulty with mutual funds and ETFs is that convenient products like these usually become available a little late in the investment cycle. Cutting-edge investors often have to do their own homework and invest directly in stocks in order to get in at the beginning of each new cycle. Investing directly in stocks provides the opportunity for greater returns than investing in an index fund. Of course, the risks are greater as well, but our market timing model should allow you to focus on the right sector.

Once you become familiar with the business and the companies in a sector, you are in a good position to buy a strong security. Sector investing provides the background you need as well as a list of companies from which to select your investment. SUMMARY There is a wide variety of new funds that provide inexpensive diversification with a minimum of homework. Exchange-traded funds add to our flexibility for trading throughout the day, and some of them take advantage of extended trading hours.

Many of them have lower fees than sector mutual funds that may impose a sales charge or marketing expense. Unlike mutual funds, however, ETFs incur a brokerage fee as if they were a stock. These funds are important to us because they complete the tools we need to implement our model portfolio. Up to now we have been able to invest in all asset classes except for gold bullion and most equities except for the Nasdaq Composite. Two of these new funds fill those gaps. One fund, StreetTracks Gold Shares with the symbol GLD, gives us a chance to own gold bullion near the price it trades on the COMEX division of the New York Mercantile Exchange. Another ETF, the ONEQ, allows us to own all 3,000 stocks in the Nasdaq.

The rest of the exchange-traded funds offer hundreds of ways to invest in industry sectors and styles with low portfolio management fees. They open a window on a segment of the business world and supply us with a list of companies to study in depth. Once we have mastered an industry, we are ready to choose one of the stocks on this list to buy.

J. Weir

80/20 rule and make-up of an organization

One of the most quoted concepts in leadership and the make-up of organizations is the 80 / 20 rule, developed by Vilfredo Pareto. A variation of the Pareto principle can be stated as “the trivial many and the critical few”. Vilfredo Pareto was an engineer who migrated into economics and political sociology. He lived in Italy from 1848 to 1923. Pareto first published his observations in 1888 [Pareto].

Pareto observed that 80% of the land and wealth was owned by 20% of the people. His further research, and that of others, confirmed this general principle: in any general population 20% of the people will succeed, 20% will flounder, and the remaining 60% will just exist. The principle has many applications in every venture.

Eighty percent of revenue will come from twenty percent of your customers. Eighty percent of problems will come from twenty percent of your clients. Eighty percent of the work will require only twenty percent of the total project time. The remaining twenty percent of the work will require eighty percent of the time.

Eighty percent of the taxes are paid by twenty percent of the people. Is that fair? The best approach to increase tax revenue is to apply 10% to all income. The top 20%, then, will have more money to develop more spending, which will ultimately increase the total tax income. Eighty percent of the revenue will come from twenty percent of the time.

This is extremely well known in the retail business. The store remains open all year, but it is only the season between Thanksgiving and Christmas that is highly profitable. The Friday after Thanksgiving is commonly referred to as “Black Friday”, because that is the first day all year that many retailers begin to make a profit.

Eighty percent of the work will come from 20% of the people. The least productive twenty percent of the people will create 80% of the problems. Being aware of the Pareto Principle assists the leader in focusing his effort. At first glance, the effective thing to do would be to eliminate the eighty percent and focus on the upper twenty.

This action, however, would be counter-productive. Even the top 20% is segmented by the 80 / 20 rule. If carried to conclusion, there would be no one left. Nevertheless, the rule can be used to determine the most effective place to expend resources and efforts. Rather than eliminating the 80%, a better plan is to increase the total volume.

The rule still applies, though the twenty percent is now of a larger number. When analyzing why the rule works, several things come up. It is a quick approximation of a standard deviation (sigma) in statistics. It would be expected, therefore, that an equal number will excel as will fail, and three times that number averages out the middle. Other than assisting with a vision for an organization, how does the 80 / 20 apply to developing leaders? From the first look, 80% of the people in any group are out of the running. The leaders will come from the 20%.

That is, however, a larger number of leaders than is observed in practice. Consider applying the 80/20 rule to the 20%. The result is that 5% of the total, or 20% of 20%, will excel. Apply the rule to the 5% and the result is the 1% rule. Now translate that to practice in any group. Eighty percent are below the line and will not have a substantial impact. Twenty percent will contribute most of the results. Five percent will be leaders. One percent will be stellar performers who will change the world. Can you move up the scale? Absolutely, apply the principles of leaders. The principles work whether you are presently in the position of leader or not. Leadership is about whom you are, not what position you hold.

Blue chip stocks

A "blue chip" is the nickname for a high-quality stock that is thought to be safe, in excellent financial shape and firmly entrenched as a leader in its field. These kinds of stocks have been called "blue chips" for decades. the phrase blue chip comes from poker where the highest and most valuable playing chip is blue.

It is an interesting reference in that the game of poker and the stock market both involve some elements of skill, luck and risk. Blue chips belong to companies renowned for the quality and wide acceptance of their products and services, and for their ability to make money and pay dividends in both good and bad years.

Blue chips generally pay dividends and are favorably regarded by investors especially by investors with a conservative risk tolerance. A few examples of blue chips are Wal-Mart, Coca-Cola, Gillette, Berkshire Hathaway and Exxon-Mobile. Blue chip stocks are sometimes referred to as bellwether issues.

Despite their reputation as boring, stogy and perhaps even a little outdated, blue chip stocks have long reigned supreme in the portfolio of retirees, non-profit foundations and conservative individuals. These companies often reside at the core of American business and boast pasts as colorful as any novel.

Yet the prosaic-ness attributed to them is certainly not deserved; there is nothing more exciting than making a profit and that is certainly what blue chips are all about. Information about blue chip stocks is usually found on the Dow Jones Industrial Index.