by Peter A. Arthur-Smith, Leadership Solutions, Inc.®

‘Ted Aronson is a quant or quantitative investor, who doesn’t analyze such fundamentals as the quality of a company’s products, the skill of its executives, the loyalty of its customers or the strength of its competitors. Instead, he and his team look only at the numbers…” Wall Street Journal article by Jason Zweig, ‘The Intelligent Investor,’ October 2020

Hallelujah! Are we finally seeing a crack in that pure numbers game strategy? A $10Bn “quant” – quantitative investment firm – based out of Philadelphia was packing up its bags and returning money to its now long suffering investors. For many years it was one of the leading lights among those quant firms that utilized up to 15 numerical formulas – such as asset values, profitability, earnings estimates, trading activities and other pure number factors – to determine a stock’s investment viability.

Apparently, since 2016, growth stocks – ones that focus more on a venture’s fundamentals: see opening quote – started to really move ahead, in terms of attractive returns, and the quant stocks have been falling behind ever since. Growth stocks in 2020 were up 36 percentage points whereas quant-stocks were only up 26 points. It’s another clear indication that behavioral economics – focused on people’s innate value – is increasingly superseding traditional economics. Such a change in mindset is long overdue. Aronson was quoted saying, as he closed his firm’s doors: “That’s what worked in the past, but it’s not going to work now, nope, not anymore.”

Clear trends like this are another reinforcer that the age of enlightened leadership has also arrived: its focus on people and progress, in contrast to conventional management’s fixation with systems and process. The former keeps up with the next frontier, whereas the latter tends to pursue milking the status quo. Let’s be clear: elements of the latter will still be important, although they won’t have the same prominence in those organizations which are more interested in significant and sustained growth.

Take the current example of Tesla: once it finally got its act together and resolved many start-up issues, its perceived value roared ahead of traditional vehicle manufacturers. It has become a clear growth stock. This is fueled by the rapidly increasing in numbers of Tesla owners, who are switching to more environmentally friendly vehicles. Its vehicles have become competitive in every sense of the word and its competitors are struggling to play in Tesla’s sandbox. Beyond that, it has also built a more favorable and modern manufa-cturing culture rather than being steeped in traditional, antagonistic management-worker relations.

Consider five ventures just featured in a special Christmas Day 2020 business sector edition of the New York Times entitled: Five Businesses that can Celebrate in One Very Bad Year. In other words, despite the prevailing pandemic, they thrived. What were among the reported factors that influenced their success?

From a unique wine store in Brooklyn, New York; to a flag supply company in Charleston, South Carolina; to a construction and design firm in Austin, Texas; to a specialist bicycle manufacturer in Chattanooga, Tennessee; and to a protective plastics business in San Diego, California: they all had go-ahead leaders. They adapted their businesses to the COVID situation and will likely continue doing so. They all demonstrated clever marketing, responded to current customer demands, had adaptable organizations, and were all hiring highly motivated people. They were gobbling up people laid-off by less enterprising or innovative ventures.

Although all of them had pretty impressive growth numbers, their emphasis was on addressing the fundamentals that produced those numbers – rather than the other way around. During the quant era – and still to a large degree – financially oriented minds start with their desired numbers and then organize their venture to meet those numbers. None of the above five entities did that. They saw an opportunity and then put all the right fundamentals in place to build the right performance momentum that would enable them to achieve their desired growth parameters.

“Quants” have a philosophy of putting their buggy (the outcome numbers) before their horse (the engine or the drivers) that produce those numbers. It’s plain to envisage that with the right horse – effective leaders, growth markets, the right product/service, innovation, motivated people, an adaptable approach – the buggy will follow…the customers will be found in the buggy. By primarily focusing on outcome numbers and working backward, you or your customers could well be whistling in the wind – plus having a wispy commitment level.

That’s why so many ventures have gone bust during the pandemic. They just saw their outcome numbers shrivel and then they ran. They weren’t able to turn on a dime; they weren’t creative enough to find new niches; and they weren’t good enough leaders to inspire their people through a difficult period. The pandemic certainly sorted out the “men or women, or combination thereof, from the boys or girls.” We can only hope that the shift in mindset toward more enlightened leadership, as a result of the pandemic and away from the “quants,” will continue long after COVID-19 is a thing of the past. It will be the other vaccine that creates healthy and prosperous organizations!

To learn more about envisioning and decision clarity, talk with: