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Alpha and Beta

A popular Wendy's commercial in the 80s made famous the question: "Where's the beef?" Good one. And here's an even better one: "Where's the alpha?" You might want to whip this one out the next time you meet with your portfolio manager.

Alpha is the over-and-above-the-expected return. It is the "value added." Therefore, it makes sense that a positive alpha means an investment has outperformed its market-predicted return, while a negative alpha would mean just the opposite. The expected return is calculated by a formula that takes into account the investment's level of unavoidable risk (aka beta).

Ever stepped into an elevator and after the doors close you become aware of an almost-suffocating scent coming from the woman next to you who must have bathed in perfume? Well, as you know, once the doors close you can't escape the smell until the ride is over. This is similar to beta, which is risk that can't be reduced or diversified away. A measure of "systematic" or market related risk, beta is used as a measure relative to a certain index -- such as the S&P 500.

So, for example, let¿s say your portfolio is managed to compete against the S&P 500. If you generate a better return than the index while not taking on added risk (standard deviation of returns) then you get alpha. Low beta means the market-related risk is low and vice versa for high beta.

Another example, let's say a mutual fund or stock has a beta of 1.5 relative to the S& P500 ¿ that means it is 1.5 times as risky. So, over time, if the S&P 500 goes up 1%, your portfolio should be up 1.5% plus (one can hope) some percentage of alpha. If the S&P 500 is down 1%, your portfolio should be down 1.5%.

Alpha and beta are based off of linear regression of a set of data. Warning: this may cause a high school fifth-period flashback, but it will be over before you know it:
The equation for a line is Y = a + bX.

a = alpha (the Y intercept - the added value)
b = Beta (the coefficient you multiply X by)
X = S&P 500 (in this case)
Y = your portfolio

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Showcase Your Leadership With a Meeting That's Well-Run

 
 

Showcase Your Leadership With a Meeting That's Well-Run

We all know what a poorly run meeting looks like--you can't make it through corporate life without finding yourself in one. It usually includes these recurring themes:

    1. The leader arrives late, there's no firm agenda and he or she rambles about extraneous items, wasting others' valuable time.
    2. There's a lot of reporting and not enough listening going on.
    3. The leader displays frustration, distraction or anger rather than productive engagement.
    4. When the meeting runs over, the leader seems oblivious to the body language in the room saying it's time to wrap things up.

At best, the boss is missing an opportunity to showcase leadership. At worst, it's serious damage to that boss's respectability and credibility.

That's because the way we run meetings is often a microcosm of how we run our companies and how we emphasize values such as collaboration, organization, smart thinking and accountability. Consequently, every meeting should be seen as a platform to inspire, motivate and move others toward a higher goal.

Here's how to run every meeting so that it works for you, not against you:

  • Have an emotional goal going in. Leaders strategically inspire certain emotions-- from excitement and optimism to gravity or urgency--depending on the task at hand. Before you go into a meeting, ask yourself, "What emotion do I want people to walk away with?" Here's a clue: "To be informed" isn't an emotion.
     
  • Live the tone you want to set. The mood of the leader establishes the tone of the meeting. If you want an energetic meeting, enter the room exhibiting energy, smiling and tell some lighthearted stories to kick it off. If you're disappointed about the lack of engagement, excitement or ideas, look in the mirror. What tone are you carrying into the room?
     
  • Respect people's time. When you call a meeting, be on time. Even if you are the only one on time, it'll set a tone for others to follow. Set a timeframe and stick to it. Hand out an agenda and manage the flow so the meeting is completed in the allotted time. If you don't get to all of the items, give participants the option to continue for 15 minutes or to reschedule for another time.
     
  • Facilitate, don't dominate. Don't use a meeting to update your staff. Most reports can be read in a separate document on people's own time. Use meetings to facilitate conversation around important issues, push for solutions and generate ideas. If your team is used to presenting reports, ask them to distribute the full report and pull out important issues that warrant discussion for the meeting.
     
  • Read the room. Don't be so focused on getting through your agenda that you fail to take stock of the room. Body language in a meeting speaks volumes. Check to see whether people are making eye contact with you or taking constant notes. Watch for eye contact between others while you make key points--it's often a giveaway for an unspoken issue in the room. And if you're not sure how the meeting is being received, ask.

    Be willing to adjust your plans to increase engagement. If it's a low-energy Monday and people seem distracted, change up the agenda and have participants tell you what they think the meeting should cover. You could have people start off with a fun activity they enjoyed over the weekend or reschedule the meeting for later. Do what you can to keep the meeting inspiring and engaging.
     
  • End with accountabilities. Rarely do meetings end without someone signing on to do something. But somewhere between the conference room door and the water cooler, those tasks are often forgotten. Go around the room at the end of the meeting and have participants sum up what each has committed to doing. The act of saying it out loud dramatically increases the chances that it'll get done.

    Great tools are available to expedite actions, such as the RACI model, which stands for Responsible, Accountable, Consulted and Informed (Google "RACI model" for helpful websites). Make sure everyone knows what he or she needs to do, and follow-up with an e-mail so it's clear to the group and can be reviewed later.

Entrepreneurs often cite lack of time for their failure to improve meetings, but taking advantage of the suggestions in this column will save time. Meetings used as a "one to many" communications tool will inspire others. Run more efficiently, they take less time and require less follow-up. Efficient meetings will also increase your credibility and set a tone of accountability throughout your organization.

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