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Leadership

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“Leading is like parenting: It’s one longprocess of pulling back.”

Carley RoneyTHE KNOTCO-FOUNDER AND EDITOR-IN-CHIEF SINCE 1996n On swallowing pride: The greatbalance of leadership is to have fer-vor over what you believe, but notbe afraid to admit when you are to-tally wrong. I’ll convince my staffabout the hot trends of the season.Then I’ll go to two more fashionshows and find out that I’m to-tally wrong. You have to be willingto swallow your pride, but as long

“I had to make sure we got rid of thesaboteurs.”AG LafleyPROCTER & GAMBLECEO SINCE 2000n On communication: I’m not abig e-mailer. I prefer face-to-facewhenever possible. And usuallywe’re in a cafeteria or an audi-torium somewhere, and I talkbriefly, and then I spend half totwo-thirds of the time on com-ments and questions and answers,which is when you really get atwhat’s on people’s minds. — Christopher Tkaczyk

Demand criticism. Let subordinates have the floor.What you can learn about leadership from thesetop bosses.

FOLLOW THESELEADERS

L E S S O N S I N L E A D E R S H I P

A.G. LAFLEYwent around theworld to face his harshest critics.

CARLEY RONEY had to learn to letgo at the company she founded.

COVER AND ILLUSTRATIONS BY PETER STEMMLER—QUICKHONEY

as you care most about your prod-uct, you don’t mind. n Favorite leader: Vaclav Havel,the first President of the CzechRepublic. He made people believethat they could achieve their owndestiny. — Matthew Boyle

“I listen, but shortlyafter, the second pieceis to pull the trigger.”Terry LundgrenFEDERATEDCEO SINCE 2003nOn not noodling: Ihave always beena pretty good listener, and I am quickto admit that I do not have all the an-swers. So I am going to listen. Butshortly after I listen, the second pieceis to pull the trigger. I have all the in-put, and here is what we are going todo. People need closure on a decision.If you listen and then noodle on it,people get confused, and that’s not ef-fective leadership. — M.B.

“As a leader you areputting your ass on the line. You should be scared.”Kevin SharerAMGENCEO SINCE 2000n On what all successful leadersshare: Courage. You are tryingto engender a passion and a desireto do something new. And new isscary. As a leader, you are puttingyour ass on the line to make it hap-

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pen. So you should be scared. n On whether it’s better to beloved or feared. I think it’s betterto be trusted. Fear kills candor andguarantees that the organizationwill perform below its potential.And the problem with being lovedas a single element is that it doesnot mean they respect you.— M.B.

“Taking yourself tooseriously is the worstthing you can do.”Carol BartzAUTODESKFORMER CEOn On what leaders need: If you’renot excited, how can you get oth-ers excited? People will know. It’slike how kids and dogs can sensewhen people don’t like them. n On the biggest mistake: Tak-ing yourself too seriously is theworst thing you can do. I have asense of humor, but there havebeen times when I also take myselftoo seriously. That’s especially truewith new leaders. They’re in thespotlight and feel as if they alwaysneed to have the right answer toprotect their image. But, really,you just have to be proud of whoyou are naturally.. — M.B.

“I was about to get mykneecaps shot off, and Ihad no clue.”Bill ZollarsYELLOW ROADWAYCEO SINCE 1999n On leading vs. managing: Manag-ing is making sure that you are doingthings right. Leading is making surethat you are doing the right things. n On failing fast: A leader has to getacross the idea of “failing fast.” Don’tbe afraid to try things, but if some-thing doesn’t work, move on. Whatpeople sometimes try to do is provethey were right in the first place.— M.B

“I started by talkingabout some of themistakes I’ve made”Hank PaulsonGOLDMAN SACHSFORMER CEOn On humility: I started work atGoldman Sachs in 1974, watchingpeople who were successful andpeople who weren’t. And the thingsthat make a good leader are beingopen-minded, having a willingnessto really ask for and accept advice,showing a sense of humility, andputting the right people in the rightseats. . — C.T.

“The future doesn’t justhappen—it’s shaped bydecisions.”Paul TagliabueFORMER NFL COMMISSIONERn On leading 32 team owners:When you are trying to persuadethem to adopt a course of action,you don’t tr y to change theirminds as much as you try to showthat it serves their own interests. Iread a great book years ago aboutthe Supreme Court that said thecourt’s challenge was “to remem-ber the future and imagine thepast.” That’s a great phrase, be-cause it says so much. You imaginethe past in order to make it rele-vant to the future that you are cre-ating. The future doesn’t just hap-pen—it’s shaped by decisions.

— M.B.

KEVIN SHARER knows that loveisn’t all you need as a leader.

HANK PAULSONasks everyone todish it out with 360-degree reviews.

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BestAdvice

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Michael Bloombergmayor of new york city, founder of BloomBerg lP

I can’t remember who told me this, but I certainly didn’t grow up knowing it, so I

must have gotten this advice at Salomon Broth-ers in the 1970s. The advice was, first, always ask for the order, and second, when the cus-tomer says yes, stop talking. I have watched more people make great presentations, whether they’re trying to sell to their family or in busi-ness or in government, and never get to the point of what they’re trying to get out of it. And too many times when the customer says yes, the person who got that answer just doesn’t stop talking. Worst advice? The worst advice that people can take is to react before they’ve had a chance to think. I think we all say things and wish we hadn’t said them. Ready, shoot, aim is not the smartest policy.

Mark Hurdchairman and ceo, hewlett-Packard

Nine years after starting at NCR, I moved to a head-office job in Dayton in 1988. An NCR executive was giving a presentation; he had great slides and an even better delivery. The CEO, Chuck Exley, listened to the entire pre-sentation in his typically gracious, courteous manner. At the conclusion, he nodded and said something brief but profound: “Good story, but it’s hard to look smart with bad numbers.” And as I reflected on it, the presenter, articulate as he was, as good as his slides were, simply had bad numbers.

That comment has always stayed with me. You have to focus on the underlying substance. There’s just no way to disguise poor performance. I’ve tried to follow that advice throughout my career. Deliver good numbers and you earn the right for people to listen to you.

“First, always ask for the order, and second, when the customer says yes, stop talking.” —Bloomberg

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Indra Nooyichairman and ceo, PePsico

My father was an absolutely wonderful human being. From him I learned to always assume positive intent. Whatever anybody says or does, assume positive intent. You will be amazed at how your whole approach to a person or prob-lem becomes very different. When you assume negative intent, you’re angry. If you take away that anger and assume positive intent, you will be amazed. Your emotional quotient goes up because you are no longer almost random in your response. You don’t get defensive. You don’t scream. You are trying to understand and lis-ten because at your basic core you are saying, “Maybe they are saying something to me that I’m not hearing.” So “assume positive intent” has been a huge piece of advice for me.

In business, sometimes in the heat of the moment, people say things. You can either misconstrue what they’re saying and assume they are trying to put you down, or you can say, “Wait a minute. Let me really get behind what they are saying to understand whether they’re reacting because they’re hurt, upset, confused, or they don’t understand what it is I’ve asked them to do.” If you react from a negative per-spective—because you didn’t like the way they reacted—then it just becomes two negatives fighting each other. But when you assume posi-tive intent, I think often what happens is the other person says, “Hey, wait a minute, maybe I’m wrong in reacting the way I do because this person is really making an effort.”

Sam Palmisanochairman and ceo, iBm

Some of the best advice I ever received was un-spoken. Over the course of my IBM career I’ve observed many CEOs, heads of state, and oth-ers in positions of great authority. I’ve noticed that some of the most effective leaders don’t make themselves the center of attention. They are respectful. They listen. This is an appeal-ing personal quality, but it’s also an effective leadership attribute. Their selflessness makes the people around them comfortable. People open up, speak up, contribute. They give those leaders their very best. When it comes to spe-cific advice, the best was from a former boss, who told me, “Don’t view your career as a linear progression.” He advised me to take horizontal rather than vertical steps: to try out situations that are unstructured, to learn different ways of working, and to get outside of headquarters and experience different cultures. I’ve applied this advice many times—most notably, taking a decidedly unstructured job at IBM Japan and then joining the fledgling IBM services business. After those experiences, I had the confidence that I could manage pretty much anything.


“Whatever anybody says or does, assume positive intent. ... When you assume negative intent, you’re angry.”

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Joanna ShieldsPresident, BeBo.com

I go back to things my dad said: “Your career is long and the business world is small. Always act with integrity. Never take the last dollar off the table.” In my dealings to sell Bebo [to AOL], this advice was critical. You can always do a slightly better deal, but that incremental dollar or windfall is not worth creating an imbalance that affects the relationship. You have to have the intuition to know when to say, “I’m going to make sure that we walk away feeling like we’ve both done well.”

Tony RobbinsPerformance coach

In 1979, when I was 19, I had all these people giving me conflicting advice. Jim Rohn, a personal-development speaker, said, ‘Tony, think about it this way. If your worst enemy drops sugar in your coffee, what’s going to happen to you? Nothing. But what if your best friend drops strych-nine in your coffee? You’re dead. You have to stand guard at the door of your mind.” He was saying that the selection of [my friends and advisors] will matter more than anything else, and that you can’t take anybody’s approach as sacrosanct. F

Thomas S. Murphyformer ceo, caPital cities/aBc

I got two pieces of advice I have always remem-bered. The first was from my father, Charles E. Murphy, who was a justice of the New York State Supreme Court. It was a point about ethics. He said, “Doing the wrong thing is not worth the loss of one night’s good sleep.”

The other came from Benjamin Selekman, a Harvard Business School professor who taught labor relations. The last thing he said, at his last lecture to my class, was, “Here is something to remember for the rest of your life: Don’t spend your time on things you can’t control. Instead, spend your time thinking about what you can.”

Charlene BegleyPresident and ceo, ge enterPrise solutions

I was about to transition to a new role, heading GE Fanuc Intelligent Platforms, and Jeff Im-melt, before he became CEO, gave me this ad-vice: Spend a ton of time with your customers. Especially when you’re new, the first thing you should do is go out to customers and ask them how you compare with competitors, how your service is, what they think of your products. At General Electric, people tend to get enamored with your title, and people want to look good in front of you. Customers will give you the real-ity. They don’t care about your title, they just want value. You’ll never get anything straighter than from a customer.


Interviews by Jon Birger, Clay Chandler, Jon Fortt, Barney Gim-bel, Peter Gumbel, Jessi Hempel, Carol Loomis, Betsy Morris, Jeffrey O’Brien, Jennifer Reingold, Patricia Sellers, Andy Serwer, Richard Siklos, Paul Sloan, Shawn Tully, and Jia Lynn Yang

keehan • winfield • hajim • mero • tkaczyk • elliott • schlosser • gilman RSTORY CODE

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F O R T U N E

The CorporaTe World has iTs Work CuT ouT for iT. With commerce no longer bound by national borders, and competition for talent becoming increasingly fierce —and get-ting fiercer—companies are searching for fresh ways to inspire, nurture, and empower a new generation of global leaders. FORTUNE worked with human resources consultants Hewitt Associates and the RBL Group to create a ranking of the world’s companies that do the best job of developing strong leaders. The corporations that top the list are those that are finding creative ways to push employees by using real-life experience, or are

tailoring classic methods—such as mentoring and lecturing—for a globally dispersed workforce.

Over 550 companies around the world were sur-veyed to uncover the firms with the most effective leadership development practices. On the pages that follow, you’ll find the results from the study, which include the top 20 global companies, regional rankings from North America to Asia, insights into leadership training from the best firms, and tips from several exceptional leaders. — Corey Hajim

TheTopCompanies for Leaders

“It’s more important to look at what your great strengths are and figure out how to leverage those to become an effective leader.” — sTephen sanger, Chairman, general mills

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F O R T U N E

1. general eleCTriC

headquarTers: Fairfield, Conn.revenue: $176.7 billion*number of employees: 327,000Ceo: Jeffrey ImmeltTop alumni: Robert Nardelli, CEO of Chrysler; James McNerney, CEO of Boeing

Take It on the Road. For 50 years companies have tried to emulate GE’s legendary Crotonville train-ing facility, a place where thousands of employees have honed their management skills. But GE now generates 50% of its revenue overseas—over half its employees work abroad too—so it has taken Crotonville on the road to hot spots around the world like Shanghai, Munich, and Bangalore. GE employees can also tap online leadership workshops through the company’s intranet. “It doesn’t matter where you are,” says Susan Peters, head of executive development, “you will get access to the same kind of training.”

2. proCTer & gamble

headquarTers: Cincinnatirevenue: $76.5 billionnumber of employees: 138,000Ceo: A.G. LafleyTop alumni: Jeffrey Immelt, CEO of GE; Meg Whit-man, CEO of eBay; Steve Ballmer, CEO of Microsoft

Hire for Emotional Intelligence. The 170-year-old maker of household brands like Crest and Pampers has produced multiple generations of leaders by hiring employees who have what the company calls “in-touch capability.” Recruiters look for leadership experience, from chairing the debate team to serving as church choir director, before they hire. To help employees build on those strengths once they are hired, P&G runs a series of programs and exercises. Says Richard Antoine, P&G’s global HR officer: “We need to have people who can be in touch or have the social intelligence to really under-stand consumers’ needs.”

3. nokia

headquarTers: Espoo, Finlandrevenue: $69.9 billionnumber of employees: 112,262Ceo: Olli-Pekka Kallasvuo

Create a Mentoring Mentality. Developing the next wave of cutting-edge cellphones means thinking about what consumers will hanker for years from now. But when it comes to grooming talent, Nokia uses an age-old method: mentoring. The company’s 12 executive board members meet four to five times with protégés at the VP and direc-tor levels during a six-month program. After that, mentees apply the lessons they learn to plans for their personal development. And for Nokia’s top 200 executives, part of their evaluation depends on how subordinates rate their ability to lead, teach, and inspire.

4. hindusTan unilever

headquarTers: MumbaiCeo: Nitin ParanjpeTop alumni: Anand Kripalu, managing director of Cadbury India; P.M. Sinha, chairman of Bata India

Place the Right People in the Right Jobs. At this Anglo-Dutch-owned Indian conglomerate, known for churning out leaders as fast as it produces Pears soap and Lipton tea, managers are rated in color-coded boxes. The top 200 to 250 managers, called greens (as in “go,” not “novice”), are singled out on a leadership rating matrix. Mediocre execs are labeled amber, and at the bottom are reds. The aim is to get the top 50 greens into critical jobs at various levels of seniority. The ranking system, the company says, helps it attract and nurture leaders.

5. CapiTal one finanCial

headquarTers: McLean, Va.revenue: $18.97 billionnumber of employees: 27,000Ceo: Richard Fairbank

Coach Your Managers. Personal trainers aren’t what you’d expect at a company focused on interest rates or loan payments. But at financial ser-vices company Capital One, CEO Richard Fairbank created a program to ensure managers are in shape to lead. More than half have been paired for a year with a former exec or outside “trainer” to hone leader ship skills. Coaches work on everything from public speak-ing to time management. While the program is aimed at the newly hired or promoted, Fairbank worked with his own expert, who helped gather employee feedback and suggest changes.

Ten of the top 20 global companies are based in the U.S. Six of those firms have headquarters in the Midwest, and the Northeast is home to two.

Nokia and BBVA top Europe’s list. They are joined by Spain’s Inditex and Britain’s GlaxoSmithKline in the global top 20 ranking.

*Global top ten: 2006 revenue in U.S. dollars.

How TheyDo ItFORTUNE asked the top ten companies to share their best practices for developing leaders in a global economy.

We spanned the globe to find the top companies for leaders. Those who made the list are positioned on the map at their respective headquarters.

leadership knoWs no boundaries

“Leadership is generic in some ways. There may be cultural differences in

the way it’s demonstrated, but the underpinnings are basically

the same everywhere.” — susan peTers, head of exeCuTive developmenT, ge

The Top Companies for leaders 2007

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F O R T U N E

6. general mills

headquarTers: Minneapolisrevenue: $13.7 billionnumber of employees: 29,500Ceo: Kendall J. PowellTop alumni: Roger Enrico, former CEO of PepsiCo; Dick Kovacevich, chairman, Wells Fargo

Prepare to Solve Problems. In 2006 the cereal maker launched a three-day simulation pro-gram that prepares employees for situations that might not occur on a typical day. Groups of 36 managers are brought together at headquarters and divided into six teams to compete against one another in challenges that replicate normal business problems. The results are often surprising, says for-mer CEO Steve Sanger: “An R&D scientist will often come up with a really smart marketing idea.”

7. mCkinsey

headquarTers: None**

revenue: More than $1 billion†

number of employees: 15,600 (2007 est.)Ceo: Ian Davis, managing directorTop alumni: Lou Gerstner Jr., chairman of Carlyle Group; Stephen Green, chairman of HSBC Holdings

Groom Global Talent. With offices in 52 countries and business that’s rarely nation-specific, global cross-pollination of employees is essential to this firm’s mission. In 2007, 2,500 consultants worked full-time on projects outside their home coun-try. CLast January, McKinsey launched a program that allows employees to work 12- to 24-month stints in two foreign markets. A Scandinavian building a career in tech might spend a year in Silicon Valley and one in Korea before returning with a broader perspec-tive and an expanded network.

8. ibm

headquarTers: Armonk, N.Y.revenue: $98.8 billionnumber of employees: 386,558 Ceo: Samuel PalmisanoTop alumni: John Chambers, CEO of Cisco; John Thompson, CEO of Symantec Systems

Learn Through Integration. In 2006 Palmi-sano created a task force of 300 senior executives to tackle the challenges of integrating Big Blue’s myriad services. For IBM, strengthening—and unifying—its leadership base and business practices is critical. This initiative, which attempts to do both, assembles teams of 25 to 40 executives to tackle real-life assignments. Says Mike Markovits, who oversees the program: “We’re learning from some of our acquired companies what we might want to migrate through the rest of IBM.”

10. infosys TeChnologies

headquarTers: Bangalore, Indiarevenue: $4.2 billionnumber of employees: 91,200Ceo: Kris Gopalakrishnan

Empower Young Employees. At Indian information-technology powerhouse Infosys, the average age of an employee is 26. But senior execu-tives, who were looking to young up-and-comers for feedback and new ideas, grew frustrated when they realized that many of those recruits were keep-ing their opinions to themselves. In response, top management inaugurated a program called Voice of Youth, which gathers together a group of top-per-forming twentysomethings and gives them a seat on the company’s management council. There’s no holding back at that point: Members of all ages are expected to “debate, discuss, and critique” any and all aspects of the business. F

9. bbva

headquarTers: Bilbao, Spainrevenue: $51.4 billionnumber of employees: 111,913Ceo: Francisco González RodríguezTop alumni: Javier Perez, president of MasterCard Europe; Luis Carranza, Finance Minister of Peru

Apply Peer Pressure. Proving yourself at BBVA, Spain’s second-largest bank, isn’t just about meeting your boss’s expectations. When it’s time for your bian-nual review, peer sentiment and self-evaluation are just as important. Co-workers spend time analyzing your work habits by answering 35 to 64 open-ended and fill-in questions. BBVA says the process is useful for filling the growing number of management posi-tions and revealing leadership deficiencies. “It helps us identify managers whose style is participatory, not coercive,” says Juan Ignacio Apoita, head of HR.

After a decade of stellar economic growth, it isn’t surprising to find four of the top 20 global companies have headquarters on the Indian subcontinent.

**McKinsey has no official headquarters. † FORTUNE estimate; the company does not disclose revenues.

reporter associates Doris Burke, Corey Hajim, John Elliott, Jenny Mero, and Christopher Tkaczyk

“Leaders are people who can easily traverse the levels

between the big picture and the nitty-gritty execution details.”

— nandan nilekani, Co-Chairman, infosys TeChnologies

“Winning the war for talent will be a predominant business

challenge for this century. Be thoughtful and diligent about

how you recruit and retain talent and about the leadership

opportunities you create for your people, particularly your

younger people.”— ian davis, managing direCTor, mCkinsey

“Look at people as much as you do

at brands.”— leena nair, head of hr,

hindusTan unilever

For more details about the Top Companies for Leaders list and to take our leadership quiz, visit fortune.com.

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To select the Top Companies for Leaders, Hewitt Associates and its research partners FORTUNE and the RBL Group surveyed human resources executives worldwide. The study was open to organizations of any type (public, private, or nonprofit) from any location, with revenues of any size. In 2006, approximately 10,000 companies, which included FORTUNE 1000 companies and Hewitt and RBL Group clients, were sent surveys. A total of 563 companies from around the globe participated. They completed a detailed questionnaire that examined factors that influence leader quality and depth in organizations. All entries were analyzed for responses that were consistent with strong leadership practices. To elicit honest answers and maintain the integrity of the methodology, the screening questions are not published. Of all participants, 250 were deemed finalists based on this analysis. Each finalist company was asked to complete an in-depth interview with Hewitt to gain greater clarity and depth about their specific leadership practices. In addition, one or more senior business executives from each finalist company completed interviews to discuss how leadership is a part of their organization’s culture. The interviews followed a standard protocol and were summarized to provide manageable data on consistent categories of information. Hewitt scored the company survey data by assigning points to questions and responses to yield both category and overall scores. All finalist companies were then screened for financial performance relative to their industry.

A panel of judges, composed of authors, academics, and journalists, gathered in each region to select and rank the 2007 Top Companies for Leaders lists in the Asia Pacific, Europe, Latin America, and North America. The judges considered many variables in selecting and ranking the lists, including the survey and interview data, company reputation, leadership culture and values, and a proven track record. A separate panel of judges, composed of one representative from each regional panel, considered all the regional Top Companies (45 total) and selected and ranked the Global Top Companies for Leaders.

eligibiliTy for regional and global Top Companies lisTsAny organization was eligible to participate in the survey process. However, global organizations were eligible for the list in the region in which they are headquartered. Subsidiaries of publicly traded companies are eligible for the list if they are publicly traded, separate from their parent company. Subsidiaries of nonpublicly traded parent companies are eligible only if they have a separate board of directors.

global CounTry

1. General Electric u.s.

2. Procter & Gamble u.s.

3. Nokia finland

4. Hindustan Unilever india

5. Capital One Financial u.s.

6. General Mills u.s.

7. McKinsey u.s.

8. IBM u.s.

9. BBVA spain

10. Infosys Technologies india

11. Inditex spain

12. Medtronic u.s.

13. Eli Lilly u.s.

14. McDonald’s u.s.

15. Whirlpool u.s.

16. Natura Cosméticos brazil

17. GlaxoSmithKline briTain

18. Australia and New Zealand Banking Group ausTralia

19. ICICI Bank india

20. WIPRO india

laTin ameriCa

1. Natura Cosméticos

2. Bancolombia

3. Cargill Agricola

4. COPA Holdings

5. Wal-Mart Mexico**

norTh ameriCa

1. General Electric

2. Capital One Financial

3. Procter & Gamble

4. General Mills

5. McKinsey

6. IBM

7. Medtronic

8. Washington Group Intl.*

9. Eli Lilly

10. Avery Dennison

11. McDonald’s

12. Whirlpool

13. Lockheed Martin

14. Cummins

15. Caterpillar

16. Colgate-Palmolive

17. Sonoco Products

18. 3M

19. American Express

20. Liz Claiborne

asia paCifiC

1. Hindustan Unilever

2. Infosys Technologies

3. Australia and New Zealand Banking Group

4. ICICI Bank

5. WIPRO

6. Sunway Holdings

7. Tata Consultancy Services

8. China Vanke

9. Lion Nathan

10. DLA Phillips Fox

europe

1. Nokia

2. BBVA

3. Inditex

4. GlaxoSmithKline

5. L’Oréal

6. Randstad Holding

7. Lufthansa

8. UBS

9. SAP

10. BMW

regional

Summary of Research Methodology

*URS announced an agreement to purchase Washington Group Intl. in May 2007. **Mexican companies are included in Latin America region.

SOURCES: HEWITT ASSOCIATES AND THE RBL GROUP

The Rankings The top 20 global companies and regional listings.

The Top Companies for leadersDutch Text


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Career Advancement

A

KLEIN•FISHER•CLIFFORD•BRODIE R

STORYCODEJOB04

STORYNAMEJOBS

ISSUEDATE2/4/2008

Page 1 of 1

100 Best Companies to work fori n t r o ➼ P r o f i l e ➼ C a s e s t u d y ➼ Q & a ➼ t H e r a n K i n G s ➼ e x p e r t a d v i c e

Month 00, 2008 A 000Month 00, 2008 A 000A

it helps to know someone. Almost all of the 100 Best rely heavily on employee referrals. Principal Financial Group and many others get about 40% of their new hires this way. At Wegmans it’s a family thing: About one in five employees is related to at least one other staffer.

play up volunteer work on

your résumé. These compa-nies are enthusiastic about community outreach, and they prefer to hire people who are too.

Get ready to interview and

interview and interview … The process varies wildly from one company to an-other, but you could be facing a series of 12 to 15 one-on-one chats or one long interview with a panel of up to 50 current employees.

Unleash your inner story-

teller. By far the most popu-lar interview style is what’s known as behavioral, mean-ing that you will be asked to describe troublesome situa-tions in past jobs and tell ex-actly how you handled them.

Do creative research. A proven way to stand out from the hordes of other can-didates is to know more about the place and the industry than your rivals. A Google search won’t do it. Says Jay Jones, recruiting manager at Alcon Laboratories: “De-tailed research, including talking to our customers, is so rare it will almost guaran-tee you get hired.”

no lone rangers need apply.

By and large, the 100 Best want team players. “I actually count the number of times a

candidate says ‘I’ in an inter-view,” says Adobe’s recruiting director Jeff Vijungco. “We’d much rather hear ‘we.’ ”

if you’ve moved around a lot,

be ready to explain why. A checkered past won’t dis-qualify you, but most of these companies are looking for people who want to build a career over the long haul. Be persuasive about why you’re ready to settle down here.

Be open to learning new

things. Showing passion is a must, and most of the 100

Best pride themselves on creating “learning environ-ments,” so talk about the skills you’d like to acquire or polish. A turnoff: declaring that you’re already the best at what you do.

if at first you don’t succeed,

don’t give up. Almost every Best Company keeps track of what FedEx calls “silver med-alists”—people who barely missed getting hired—and alerts them to new open-ings. If possible, register on the company’s website. Four Seasons, for one, has hired people seven or eight years after an initial meeting.

Don’t coast on their reputa-

tion. One final tip: Don’t ap-ply for a job just because the company is on our list. In the words of Mike Gallagher, HR director at SAS Insti-tute, “We know we have a reputation as a great place to work. But if the reason you want to work here is that you want subsidized day care or a great gym, you won’t last.” Or, for that matter, make it through the first round of interviews. F

Best in your state Seetopemployersnearyouandbestplacestolivenearby.fortune.com/best companies

How to Get Hired by a ‘Best’ Company

even during economic downturns, the 100 Best are constantly scouting for talent. looking at the past decade, our top 25 each year have averaged job

growth of 14%. Here’s how to get your foot in the door. By anne fisher

pATRIC

KTHOMAS

LEARN BY DOINGEvery endeavor has its

tricks and shortcuts.Business is no different.

F O R T U N EILLUSTRATIONS BY MARK MATCHO

FOUR KEY SKILLS TO MASTER NOWBecoming a titan of business requires mastery of all sorts of tasks,from the complicated (budget projections) to the trivial (figuring out why theprinter keeps telling you it needs paper in tray A-1 when any idiot can see there’splenty of damn paper there). Admittedly, most skills worth having take years toperfect. But there are others that anyone can improve relatively quickly—andthat can have a quick and measurable impact on your career. To that end, we’ve

identified experts in four key areas and asked them to construct actionplans to help novices grow into deft operators. Absorb these

lessons, and you’ll be more effective and time-efficient, athome and at work. And the next time the printer jams,

you’ll be that much smoother at finding someone elsewho can fix it for you.

Stand and deliver. Cut a sweet deal. Rev your reading. Makea name stick—and REAP THE REWARDS. By Reed Tucker

n Prepare your head.“Be physically energizedand centered beforeyou walk in the room,”says Greene. If yourenergy level is low, dosome physical activitybeforehand to invig-orate yourself. Takedeep breaths to calm

any nervousness.

n It’s not a performance.“People have a flawed per-

ception of what speaking isabout,” says Greene. “The great-est speakers, like F.D.R., Reagan,and Clinton, approach it as aconversation with the audience.”

n Podiums are for dictatorsand high school principals. Standing behind a podium dis-connects you from the audienceand may worsen fragile nerves.Instead, grab the mike and wan-

der the stage or room, or at leaststep to the side of the podiumand lean against it.

n Dress the audience. Pictur-ing the audience naked is actu-ally “one of the worst things youcan do,” Greene says. How com-fortable would you feel chat-ting with the naked guy in thegym locker room?

n Eye contact is your friend.“You’re speaking to individualpeople,” Greene says. Lookingat them one by one shrinks theroom.

n Don’t sweat the questions.If you’re stumped, “regard it asa positive,” Greene coaches.Seize the opportunity to talkabout your team: “We’re luckyto have one of the real expertson that subject. I’ll get you intouch with him or her later.”

GREATNESSSecrets of

FFFFFFFFFFFF

PUBLIC SPEAKING MADE EASYWhen it comes to fears, public speaking ranks right up there withdeath or finding yourself sitting between Lou Dobbs and BillMaher on a cross-country plane trip. But there’s nothing to beafraid of, says Richard Greene, author of Words That Shook theWorld, as long as you’ve got a game plan. Greene points the way.

n “How did you come up withthat number?”Opens a windowinto the other side’s thoughts.

n “Where were we?” Look likeyou care, but not that much.

n “Letmecheck with my wife.”Or my husband, my boss, my

banker. Stops you from sayingyes prematurely.

n “Huh? Wha?”Pretendyoudon’tunderstand,and others will talk.

n “If things change, give me acall.” Be willing to walk away—and put the burden on them.

THE ART OF NEGOTIATIONIn pursuing a high-stakes deal or just asking for a raise, using theright phrases matters. Herb Cohen, author of Negotiate This, andadvisor to presidents Carter and Reagan, shares his best lines.

n Never read without a pen.By moving the tip of a pen be-neath a line, your eyes will in-stinctively follow, speeding youup. On a computer, run the onscreen cursor under the text.

n Pick up the book. Reading at a 45-degree angle is easier onthe eyes than off a flat surface.

n Relax your eyes. Focus on

full lines, not specific words, us-ing peripheral vision. Move yourhead, and pay attention to theupper half of letters.

n Kill that voice in your head.Silently repeating words slowsyou down. To break the habit, try quietly humming.

n Keep on truckin’. Resist the urge to “regress” and reread.

n Confirm and repeat. In thefirst 20 seconds, make him feelthere’s no one else in the world.

n Connect the name to yourbrain. When you meet a guynamed Bill, start thinking ofother Bills you know. Like BillClinton. Or, “Oh, my uncle Bill.”Or a duckbill or a dollar bill. Weneed reminders.

n Use the name three times.No third-rate salesman rap:“Well, John, great to see you, John.” Spread it out—once to confirm you have thename right, then in mid-conversation, and again whenyou say goodbye. F

THE GOSPEL OF SPEED READINGSlow readers not only waste time but their comprehension suf-fers, says H. Bernard Wechsler of the Speed Learning Instituteof America. Here are his five tips for burning up the pages.

Skill Yourself UpGREATNESSSecrets of

MEMORY GAMES Have you ever confused a Donwith a John? Benjamin Levy,author of Remember EveryName Every Time: CorporateAmerica’s Memory Master Re-veals His Secrets, lays out his“catch and match” technique:

n Always introduce yourselffirst. Execs can be so intent on selling themselves or their ideas that they fail to really make an impression by remembering someone’sname. Instead get your own intro out of the way, fast. Then you can focus on the other person.

F O R T U N E

FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF

What makes Tiger Woods great? Whatmade Warren Buffett the world’s premier in-vestor? We think we know: Each was a naturalwho came into the world with a gift for doing ex-actly what he ended up doing. As Buffett toldFORTUNE not long ago, he was “wired at birth toallocate capital.” It’s a one-in-a-million thing.You’ve got it—or you don’t.

Well, folks, it’s not so simple. For one thing, youdo not possess a natural gift for a certain job, be-cause targeted natural gifts don’t exist. (Sorry, War-ren.) You are not a born CEO or investor or chessgrandmaster. You will achieve greatness onlythrough an enormous amount of hard work over many years. And not just any hard work, but

Research now shows that the lack of natural TALENT ISIRRELEVANT to great success. The secret? Painful anddemanding practice and hard work. By Geoffrey Colvin

BORN WINNER?Golf champ Tiger Woods

never stopped trying toimprove. He devoted hours topractice and even remade his

swing twice, because that’s what it took to get better.

F O R T U N E

GREATNESSSecrets of

WHAT IT TAKES TO BE GREAT

SPOT ILLUSTRATIONS BY PETER HOEY

FFFFFFFFFFFFFFFFFFFFFFFFFF

He’d had nine years of intensive study. And as John Horn of theUniversity of Southern California and Hiromi Masunaga of Cal-ifornia State University observe, “The ten-year rule represents avery rough estimate, and most researchers regard it as a minimum,not an average.” In many fields (music, literature) elite perform-ers need 20 or 30 years’ experience before hitting their zenith.

So greatness isn’t handed to anyone; it requires alot of hard work. Yet that isn’t enough, since many people workhard for decades without approaching greatness or even gettingsignificantly better. What’s missing? The best people in any fieldare those who devote the most hours to what the researchers call“deliberate practice.” It’s activity that’s explicitly intended to im-prove performance, that reaches for objectives just beyond one’slevel of competence, provides feedback on results, and involveshigh levels of repetition. For example: Simply hitting a bucketof balls is not deliberate practice, which is why most golfers don’tget better. Hitting an eight-iron 300 times with a goal of leav-ing the ball within 20 feet of the pin 80% of the time, continu-ally observing results and making appropriate adjustments, anddoing that for hours every day—that’s deliberate practice.Consistency is crucial. As Ericsson notes, “Elite performers inmany diverse domains have been found to practice, on the av-erage, roughly the same amount every day, including weekends.”

Evidence crosses a remarkable range of fields. In a study of 20-year-old violinists by Ericsson and colleagues, the best group(judged by conservatory teachers) averaged 10,000 hours of de-liberate practice over their lives; the next-best averaged 7,500hours; and the next, 5,000. It’s the same story in surgery, insur-ance sales, and virtually every sport. More deliberate practiceequals better performance. Tons of it equals great performance.

Not all researchers are totally onboard with the myth-of-talenthypothesis, though their objections go to its edges rather than itscenter. For one thing, there are the intangibles. Two athletes mightwork equally hard, but what explains the ability of New EnglandPatriots quarterback Tom Brady to perform at a higher level inthe last two minutes of a game? Researchers also note, for ex-ample, child prodigies who could speak, read, or play music at an

The Myth of the Natural GREATNESSSecrets of

work of a particular type that’s demanding and painful. Buffett,for instance, is famed for his discipline and the hours he spendsstudying financial statements of potential investment targets.The good news is that your lack of a natural gift is irrelevant—talent has little or nothing to do with greatness. You can makeyourself into any number of things, and you can even make your-self great. Scientific experts are producing remarkably consis-tent findings across a wide array of fields. Understand that tal-ent doesn’t mean intelligence, motivation, or personality traits.It’s an innate ability to do some specific activity especially well.British-based researchers Michael J. Howe, Jane W. Davidson,and John A. Sluboda conclude in an extensive study, “The evi-dence we have surveyed … does not support the [notion that]excelling is a consequence of possessing innate gifts.”

To see how the researchers could reach such a conclusion, con-sider the problem they were trying to solve. In virtually everyfield of endeavor, most people learn quickly at first, then moreslowly, and then stop developing completely. Yet a few do im-prove for years and even decades, and go on to greatness. The ir-resistible question—the “fundamental challenge” for researchersin this field, says the most prominent of them, professor K. AndersEricsson of Florida State University—is, Why? How are certainpeople able to go on improving? The answers begin with consis-tent observations about great performers in many fields. Scientistsworldwide have conducted scores of studies since the 1993 publi-cation of a landmark paper by Ericsson and two colleagues, manyfocusing on sports, music, and chess, in which performance is rel-atively easy to measure and plot over time. But plenty of additionalstudies have also examined other fields, including business.

The first major conclusion is that nobody is great without work.It’s nice to believe that if you find the field where you’re naturallygifted, you’ll be great from day one, but it doesn’t happen. There’sno evidence of high-level performance without experience or prac-tice. Reinforcing that no-free-lunch finding is vast evidence thateven the most accomplished people need around ten years of hardwork before becoming world-class, a pattern so well establishedresearchers call it the ten-year rule. What about Bobby Fischer,who became a chess grandmaster at 16? Turns out the rule holds:

Track and field world record breakers AGE AT PEAKACHIEVEMENT

Major League baseball MVPs

Chemists

Economists (theoretical)

Great inventors

Economists (data-driven)

Philosophers

2527

3536

3956

64

AGE AT PEAKA25

THE YEARS OF PEAK PERFORMANCEHard work is the trait all top stars have in common, but age is the wild card.

FORTUNE CHART / SOURCES: DAVID W. GALENSON, BENJAMIN F. JONES, HARVEY C. LEHMAN

F O R T U N E

F O R T U N E

unusually early age. But on investigation thosecases generally include highly involved parents.And many prodigies do not go on to greatness intheir early field, while great performers includemany who showed no special early aptitude. Cer-tainly some important traits are partly inherited,such as physical size and particular measures of in-telligence, but those influence what a persondoesn’t do more than what he does; a five-footerwill never be an NFL lineman, and a seven-footerwill never be an Olympic gymnast. Even those re-strictions are less severe than you’d expect: Erics-son notes, “Some international chess mastershave IQs in the 90s.” The more research that’sdone, the more solid the deliberate-practice modelbecomes.

All this scholarly research is simply evidence for what great per-formers have been showing us for years. To take a handful of ex-amples: Winston Churchill, one of the 20th century’s greatest or-ators, practiced his speeches compulsively. Vladimir Horowitzsupposedly said, “If I don’t practice for a day, I know it. If I don’tpractice for two days, my wife knows it. If I don’t practice for threedays, the world knows it.” He was certainly a demon practicer, butthe same quote has been attributed to world-class musicians likeIgnace Paderewski and Luciano Pavarotti. Many great athletes arelegendary for the brutal discipline of their practice routines. In bas-ketball, Michael Jordan practiced intensely beyond the alreadypunishing team practices. (Had Jordan possessed some mammothnatural gift specifically for basketball, it seems unlikely he’d havebeen cut from his high school team.) In football, all-time-great re-ceiver Jerry Rice—passed up by 15 teams because they consid-ered him too slow—practiced so hard that other players wouldget sick trying to keep up. Tiger Woods is a textbook example ofwhat the research shows. Because his father introduced him to golfat an extremely early age—18 months—and encouraged him topractice intensively, Woods had racked up at least 15 years of prac-tice by the time he became the youngest-ever winner of the U.S.Amateur Championship, at age 18. Also in line with the findings,he has never stopped trying to improve, devoting many hours aday to conditioning and practice, even remaking his swing twicebecause that’s what it took to get even better.

The evidence, scientific as well as anecdotal, seemsoverwhelmingly in favor of deliberate practice as the source of greatperformance. Just one problem: How do you practice business?Many elements of business, in fact, are directly practicable. Pre-senting, negotiating, delivering evaluations, deciphering financialstatements—you can practice them all. Still, they aren’t the essenceof great managerial performance. That requires making judgmentsand decisions with imperfect information in an uncertain envi-ronment, interacting with people, seeking information—can youpractice those things too? You can, though not in the way you wouldpractice a Chopin etude.

Instead, it’s all about how you do what you’re already doing—you create the practice in your work, which requires a few criticalchanges. The first is going at any task with a new goal: Instead ofmerely trying to get it done, you aim to get better at it. Report writ-ing involves finding information, analyzing it, and presenting it—each an improvable skill. Chairing a board meeting requires un-

derstanding the company’s strategy in the deepestway, forming a coherent view of coming marketchanges, and setting a tone for the discussion. Any-thing that anyone does at work, from the most ba-sic task to the most exalted, is an improvable skill.

Armed with that mindset, people go at a job in anew way. Research shows they process informationmore deeply and retain it longer. They want moreinformation on what they’re doing and seek otherperspectives. They adopt a longer-term point ofview. In the activity itself, the mindset persists. Youaren’t just doing the job, you’re explicitly trying toget better at it in the larger sense. Again, researchshows that this difference in mental approach is vi-tal. For example, when amateur singers take asinging lesson, they experience it as fun, a release

of tension. But for professional singers, it’s the opposite: They in-crease their concentration and focus on improving their perfor-mance during the lesson. Same activity, different mindset.

Feedback is crucial, and getting it should be no problem in busi-ness. Yet most people don’t seek it; they just wait for it, half hop-ing it won’t come. Without it, as Goldman Sachs leadership-de-velopment chief Steve Kerr says, “it’s as if you’re bowling througha curtain that comes down to knee level. If you don’t know howsuccessful you are, two things happen: One, you don’t get any bet-ter, and two, you stop caring.” In some companies, like GeneralElectric, frequent feedback is part of the culture. If you aren’t luckyenough to get that, seek it out.

Through the whole process, one of your goals is to build whatthe researchers call “mental models of your business”—picturesof how the elements fit together and influence one another. Themore you work on it, the larger your mental models will becomeand the better your performance will grow. Andy Grove could keepa model of a whole world-changing technology industry in his headand adapt Intel as needed. Bill Gates, Microsoft’s founder, had thesame knack: He could see at the dawn of the PC that his goal of acomputer on every desk was realistic and would create an unimag-inably large market. John D. Rockefeller, too, saw ahead whenthe world-changing new industry was oil. Napoleon was perhapsthe greatest ever. He could not only hold all the elements of a vastbattle in his mind but, more important, could also respond quicklywhen they shifted in unexpected ways. That’s a lot to focus on forthe benefits of deliberate practice—and worthless without onemore requirement: Do it regularly, not sporadically.

For most people, work is hard enough withoutpushing even harder. Those extra steps are so difficult andpainful they almost never get done. That’s the way it must be. Ifgreat performance were easy, it wouldn’t be rare. Which leads topossibly the deepest question about greatness. While experts un-derstand an enormous amount about the behavior that producesgreat performance, they understand very little about where thatbehavior comes from. The authors of one study conclude, “We stilldo not know which factors encourage individuals to engage in de-liberate practice.” Or as University of Michigan business schoolprofessor Noel Tichy puts it after 30 years of working with man-agers, “Some people are much more motivated than others, andthat’s the existential question I cannot answer—why.” The criti-cal reality is that we are not hostage to some naturally granted level

The Myth of the NaturalGREATNESSSecrets of

Many greatathletes arelegendary

for thebrutal

disciplineof their

practice.

F O R T U N E

of talent. We can make ourselves what wewill. Strangely, that idea is not popular. Peo-ple hate abandoning the notion that theywould coast to fame and riches if they foundtheir talent. But that view is tragically con-straining, because when they hit life’s in-evitable bumps in the road, they concludethat they just aren’t gifted and give up.

Maybe we can’t expect most people toachieve greatness. It’s just too demanding.But the striking, liberating news is that great-ness isn’t reserved for a preordained few. Itis available to you and to everyone. F

The Myth of the NaturalGREATNESSSecrets of

Approach each criticaltask with an explicit goal of get-ting much better at it.

As you do the task, focuson what’s happening and whyyou’re doing it the way you are.

After the task, get feedbackon your performance from multi-ple sources. Make changes inyour behavior as necessary.

Continually build mentalmodels of your situation—yourindustry, your company, your ca-reer. Enlarge the models to en-compass more factors.

Do those steps regularly,not sporadically. Occasionalpractice does not work.

TIP SHEET

PERFECTPRACTICE 1

2

3

4

5

This article was the basis for Geoffrey Colvin’s newbook, “Talent Is Overrrated: What Really SeparatesWorld-Class Performers From Everybody Else.”

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F O R T U N E

KING OF THE HILLOnce you achieve greatness,

beware of the trapdoor waitingat the top.

GREATNESSSecrets of

ILLUSTRATION BY SEYMOUR CHWAST

The lowest level, Unconscious Incompe-tence, is a comfortable place. You think youknow everything—and you can’t hear the an-swers to questions you haven’t even thought toask. You can linger here forever, ignorant ofyour own ignorance, unless something shocksyou into awareness … and level two. Enteringthis stage, Conscious Incompetence, is likelearning you have bad breath. You were hap-pier before you had this knowledge. But nowyou’re motivated to improve. It’s here that youlearn the various steps of driving a stick shift.Depress clutch. Engage gear. Tap accelerator.Release clutch—but not so fast! Eventually youaccumulate enough know-how to reach levelthree, Conscious Competence. Now you candrive that stick-shift car around town, but onlywith great mental effort, and you stall out atevery third stoplight. It will take time to attainlevel four, Unconscious Excellence, whereyou’re no longer thinking. You just drive, andcarry on a conversation—say, in Italian—with-out thinking about the rules of grammar.

Before we get to the highest level, let’s seewhat’s been happening in your head. There’s theolder, animal part of your brain that handles au-tomatic tasks like swallowing. The newer, self-aware region deals with situations that take moreprocessing power, like crossing the street in Lon-

don. (Look right, then left.) As the newer parthands off tasks to the older part, it frees upworking memory—and pushes you to LevelFour. But if you’re, say, a NASCAR driver, youdon’t want to drive on automatic. You wantcontrol of every nuance—which brings us tolevel five: Conscious Excellence. At this rar-efied place, you use your conscious mind to de-construct and modulate the elements of yourperformance. (There’s nothing simpler thanrunning—unless you’re a sprinter who takesyears to shave a second off her time.) This alsomeans you can explain it to others—somethingthat level four achievers cannot do.

You’re at the pinnacle! So just beware thetrapdoor and … oh, did we mention the trap-door? Yeah, it’s called Overconscious Incom-petence, a.k.a. Chuck Knoblauch syndrome,after the Yankee second baseman who sud-denly couldn’t make the simple throw to first.That’s the thing about thinking: Your mind isyour ally, if it can stay out of the way. “Visual-ize,” the sports psychologists say. So summon,if you will, the classic photo of Thomas WatsonSr., patriarch of IBM, beneath his famousmotto, THINK. And next to it, a version that’sbeen modified to read, THINKING IS STINKING.Hold those both in your head, though not toomuch, and let the excellence begin. F

FIVE LEVELSOF EXCELLENCEWhite belt, green belt, brown belt, black. Novice, appren-tice, journeyman, master. VP, GM, COO … Oh, never mind. Poems aregood for listing four things. But excellence can’t be reduced to some sim-plistic four-level hierarchy. It has five levels. Our framework is one vari-ant of a model, a useful way to show how the brain works, popularized bythe late psychologist Thomas Gordon some three decades ago. It showsthe road to mastering a new skill—speaking a language, managing peo-ple, whatever—as a series of steps that get steeper. You can’t move up byskipping steps. And most people don’t reach the top.

A FINAL WORD: You’ve read how the great ones do it, and you’vegotten some fine advice, both practical and inspirational. Nowit’s time to climb the mountain. By Jerry Useem


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VALUE

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Figures assume an 8% annual growth rate

Eager to lock in your gains on a hot investment? Before you click on sell, consider the tax implications. In a taxable account, you’ll pay 15% in capital gains taxes every time you sell a winner you’ve owned for more than a year (the longer you can defer paying taxes, the more time you’re giving your money to grow). Come tax time, however, it can be a good move to sell losers in your portfolio to take advantage of the annual $3,000 capital-loss deduction limit and offset any capital gains on your winning picks.

Defer TAXeS10

All debt is not created equal, so rank yours by interest rate and pay off the bad stuff first. That usually means credit cards, which can carry interest rates as high as 30%. (Com-pare your card’s APR with others at Bankrate.com.) On the other end of the scale are student loans. Those rates are generally between 3% and 6%, so consider making the minimum payment and investing in your 401(k) instead. Hey, even Supreme Court Jus-tice Clarence Thomas was still paying off his school loans when he joined the bench.

DiTch creDiT cArD DeBT9

Be wary of any mutual fund charging a management fee higher than 1% (a few stellar managers may be worth it; most are not). A manager with a high buying and selling rate (called “turnover”) should also set off warning bells. If you aren’t interested in watching your fund manager like a hawk, stick with an index fund, like one from Vanguard, where expenses are typically around 0.2%. And if you’re trading stocks, don’t be fooled by low commissions: They add up.

holD Down feeS8

The more time you have, the more risk you should take. If you’re just starting out, 80% to 100% of your assets ought to be in stocks. “If you have, say, 30 or 40 years, what happens over the next three months or even three years doesn’t matter. If you need the money in two years and it drops 40% in one year, that’s a problem,” says Stuart Ritter, a certified financial planner with T. Rowe Price. The simplest trick? Subtract your age from 120: That’s the percentage you should have in stocks; the rest should be in bonds.

Go heAVYon STocKS7

No one wants to think about saving—so don’t. Already more companies are making 401(k) enrollment automatic (34% of big companies, vs. virtually none ten years ago). If you’re already maxing out your 401(k), see whether your company can transfer money directly from your paycheck into your Roth IRA or a taxable account. Or ask if your bank can transfer a set amount (even $100 a month) from your checking account into a high-interest-bearing online savings account (check out HSBC’s and ING’s offerings).

MAKe SAVinG AuToMATic6

You want to grow your money for the long haul, so you can’t switch your strategy every time you read the headlines. If you see an asset class that’s catching fire—like real estate investment trusts (REITs) in the late ’90s or commodities ETFs this year—ask yourself some basic questions: Can I describe how it works in plain English? If not, go to Investopedia.com for a definition. Why is it so popular right now? If the answer is “Paris Hilton bought some,” best to stay away.

Don’T chASe TrenDS5

Even the highest-paid fund managers have trouble beating the S&P 500, so give up the chase. The most straightforward way to avoid this trap is to pick a plan that diversifies your assets and then rebalance it at least once a year. Check your asset breakdown with Morningstar’s free Instant X-Ray tool (www.morningstar.com). Essentially, rebalancing means selling some winners that are taking up too big a share of your portfolio and rede-ploying that cash to bulk up in areas that have lagged. (Buy low, sell high—get it?)

Don’T TrY To BeAT The MArKeT4

If you have a full-time job, and it’s not picking stocks, acknowledge that. Choosing three or four index funds—say, an S&P 500 fund, an EAFE fund, and a small-cap stock fund—will give you broad exposure. ETFs (low-cost mutual funds that trade like stocks) are also an easy way to invest in more exotic asset classes, like commodities or technol-ogy. If you’re close to retirement, also consider life-cycle funds from Vanguard or T. Rowe Price, which will automatically rebalance your account according to your goals.

KeeP iT SiMPle3

If you’re not already enrolled in your company’s plan, stop reading now and sign up. Since you’re putting in pretax dollars, a 401(k) is an unrivaled savings vehicle, and passing up an employer match is–literally–giving up free money. Confused about how to manage all the choices in your 401(k) plan? New pension legislation is encouraging companies to offer third-party investment advisory services, so call HR to find out if yours offers any free guidance.

uSe Your 401(k)2

More than any one stock or mutual fund pick, the age you start investing will determine how much wealth you build. To illustrate: Employee A starts putting away $100 a month when she’s 22. Her money grows at 8% a year, and after ten years she stops—she doesn’t put in another penny. Employee B waits until he’s 32 to set aside $100 a month, also growing at 8% a year, and he keeps it up until he hits 64. When they both retire at 64, she will have $234,600, and he’ll have only $177,400. Need we say more?

STArT eArlY1

1 0 r u l e s f o r B u I l D I N G W e A l T H

Is saving still on your “to do—someday” list? Don’t wait too long. By saving just $1,000 a year at age 25, you could end up with five times what you’d have if you started at 45. So jump in now—while time’s still on your side.

AGING GrAcefully

ICO

NS

BY

QU

ICK

HO

NE

Y

L klein•colow•zweig•demos•gelman

STORY CODEBET24

STORY NAMEName of Story Goes Here

ISSUE DATE12/24/2007

Page00of00

a

why do smart people do such stupid things with their money? The answer of-ten lies in neuroeconomics, a hybrid of neuroscience, economics, and psychology that drills down to the biological bedrock of decision-making. Using MRI scans and EEG recordings, neuroeconomists observe the neural pathways along which investing decisions flow. What have they learned? That financial decisions are driven by feel-ings to an astounding extent. Even when we think we are being rational, we are often driven by impetuous emotions of which we are barely conscious. Therefore, the keys to investing success, whether it’s for retirement or just for fun, are strategies and tricks to prevent the heat of the mo-ment from melting your better judgment.

investor’s guide

win bigWhen playing the investing game, it’s easy to let your impulses make all the wrong moves. Learning to trick yourself can help. by jason zweig

TRAin YOUR bRAin TO

adapted from Jason Zweig’s new book, Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich, available from Simon & Schuster.

IllUsTRaTIons by davId GoldIn

Take the Global ViewKeep calm by using

a spreadsheet that

emphasizes your

total net worth, not

the changes in each

holding. Before you

buy a stock or mutual

fund, check whether

it overlaps what you

already own—try the

Instant X-Ray tool at

Morningstar.com.

Hope for the Best—But Expect the Worst Being braced for disas-

ter—by diversifying

and learning market

history—can help keep

you from panicking.

Every good investment

performs badly some

of the time. Intelligent

investors stick with

solid companies that

hit rough patches.

Investigate, Then InvestA stock is not just

a price; it’s a piece

of a living corporate

organism. Study the

company’s financial

statements. Read

a mutual fund’s

prospectus before you

buy. If you want to hire

a broker or financial

planner, do a back-

ground check before

you write a check.

Never Say AlwaysNo matter how sure

you are that an in-

vestment is a winner,

don’t put more than

10% of your portfolio

in it. If you turn out

to be right, you’ll still

make plenty of money,

but if you turn out to be

wrong, you’ll be glad

you kept most of your

powder dry.

Know What You Don’t KnowDon’t believe you are

already an expert.

Compare stock and

fund returns against

the overall market

and across different

time periods. Ask

what might make

this investment go

down; find out if the

people marketing it

to you have their own

money in it.

The Past Is Not a PrologueOn Wall Street, what

goes up must come

down, and what goes

way up usually comes

down with a sickening

crunch. Never buy a

stock or mutual fund

just because it has

been going up. Intelli-

gent investors buy low

and sell high, not the

other way around.

Weigh What They Say The easiest way to

silence a market

forecaster is to ask for

the complete track

record of all his or her

predictions. If you can’t

get a complete list,

don’t listen. Before

trying any strategy,

gather objective

evidence on the

performance of others

who have used it.

If It Sounds Too Good to Be True, It Probably IsMore precisely: If it

sounds too good to

be true, it absolutely

is. Anyone who offers

a high return at a low

risk in a short time

is probably a fraud.

Anyone who listens is

definitely a fool.

Costs Are KillersTrading costs can eat

up 1% of your money

per year, while taxes

and mutual fund fees

can take another 1%

to 2%. If middlemen

take 3% to 5% of your

money per year, they

will get rich. If you want

to get rich, comparison

shop and trade at a

snail’s pace.

Eggs Go SplatNever keep all your

eggs in one basket.

Spread your bets

across U.S. and

foreign stocks, bonds,

and cash. No matter

how much you like

your job, don’t put all

your 401(k) into your

company’s stock;

employees at Enron

and WorldCom liked

their company too.

TEN Tricks for bETTEr iNvEsTiNg

PoP QUiZ: YoUr hEarT or YoUr miNd? Gut, impulse, a feeling—these emotional signals come in handy for lots of things in life. But as neuroeconomics teaches us, they’re not the right tools for money management. Try these quick investing brain teasers pitting your intuition against cold, hard logic. The answers may surprise you.

I. Which is the better investment strategy?

A. Gaining $300 for sure.

B. An 80% chance of gaining $400 with a 20% chance

of gaining zero.

Most people say A, going for the sure thing. But over time, B is the

better choice. An 80% chance of gaining $400 works out to an average

gain of $320.

How about these two? C. Losing $300 for sure.

D. An 80% chance of losing $400 with a 20% chance of

losing nothing.

This time, most avoid the sure thing, switching to D. But the math

points to C, because the average loss on the riskier bet is $320. The

example illustrates our tendency to cash in winners too soon and hang

on to losers for too long. Over the course of a lifetime, you’ll do better

by letting winners ride and ditching your obvious losers promptly.

II. It’s lunchtime. A colleague offers you this choice: A. $10 today.

B. $11 tomorrow.

Okay. Now what if she made this offer? A. $10 a year from now.

B. $11 a year and a day from now.

Most people tend to prefer A in the first choice but B in the second.

Yet in both cases the take improves $1 by waiting just 24 hours. As

this example shows, we are suckers for short-term rewards, even

though we know perfectly well we should be more patient in the long

term. This explains why people who “can’t afford” to save for their

retirement have no problem spending $4.79 for a cup of boiled beans

at Starbucks three times a day. Instant gratification feels a lot better

than saving for the future.

III. If you flip a coin six times, which sequence of heads (H) and tails (T) is more likely to occur?

A. HHHHHH

B. HTTHTH

Both have identical 1-in-64 odds of occurring, because each coin flip is

independent. One outcome never predicts another. But our gut tends

to see patterns where there aren’t any. Like thinking that a stock falling

all week is due for a good day. Or that a rising stock will just keep going

up. Stocks aren’t quite as random as coins, but they’re close—and it’s

smarter to prepare for the unexpected.

From Your MoneY and Your Brain by Jason Zweig. Copyright © 2007 by Jason Zweig. reprinted by permission oF simon & sChuster inC., new york.

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