Incomes and Outcomes
Are you interested in scoring? Or winning?
Traditionally, companies are organized around their products. Proctor and Gamble sell shampoo; GM builds cars; Disney makes movies. But what people really want is to get a job done. They don’t want a car as much as they want transportation; they don’t want to make a phone call, they want to communicate. Understanding the difference can be life-changing.
20 year ago Cordis Corporation was a bit player in angioplasty devices. Those are the small balloons doctors thread into the heart to clear blockages and avoid a heart attack. But customers didn’t want angioplasty. They wanted healthy hearts. So Cordis talked to doctors, nurses, patients, and administrators to see how they could do things better.
The result wasn’t just incremental improvement, it was a totally new product. In their conversations, Cordis found that the biggest problem was that the blockages would come back. So they redesigned their device, eventually introducing stents as a way to keep the coronary arteries clear. They saw their market share grow from 1% to nearly 10% in the US, and a few years later, Johnson and Johnson acquired them.
Cordis Stock Price. Source: Bloomberg
Outcome-driven investing should follow the same approach. What does the client want? Income? How much income? How much growth? Typically, investors compared their portfolios to the S&P 500 or some other index to see how they’ve done. But that can be misleading. Beating the index is cold comfort if you need to earn a 4% income stream and the index only yields 2%. Conversely, if the investor’s goal is to double size of the portfolio over the next 10 years, generating current income isn’t a priority. Too often, we focus on the product or the process, rather than the ultimate objective.
An outcome-orientation can help you get away from the day-to-day ups and downs of the market’s latest obsession with Chinese industrial production or European Central Bank policy. What matters is what’s important to you, not some random fact about someplace you’ve never heard of.
In sports, the objective isn’t to score points, it’s to win. There’s a difference. With investing, the goal isn’t necessarily to earn more, it’s for your money to help you to live the life you choose. It’s our choices that really define who we are.
Douglas R. Tengdin, CFA
Chief Investment Officer