The Safe Alternative?

Do you want the right approach, or the safe approach?

Plane on approach to Heathrow Airport. Photo: Adrian Pingstone. Source: Wikimedia

Everyone wants to be safe. Cars are getting safer all the time. Now they have staged airbag inflation, side airbags, blind-spot sensors, adaptive cruise, and so on. Highway fatalities are almost half of what they were 40 years ago, despite the fact that we drive more than twice as much. Food processors track and recall any food that’s been tainted. And it’s almost unthinkable now to venture out on a bicycle without a helmet.

But when it comes to business, the safe alternative can often be the wrong choice. In England, this is called the “Heathrow Effect”. Heathrow Airport is located 14 miles outside of London and is a major transportation hub. Chances are, if you fly from the US to London, you’ll land at Heathrow. It’s been around for decades and it takes the better part of an hour to get to Heathrow from downtown London.

As a more convenient alternative, London City Airport was built in 1986 for business travel: a one-strip airport with a steep, restricted glidepath and 4,900 foot runway. Only special airliners and specially traiNed crew are allowed to land at London City. It’s a lot more convenient for business travel, especially from London’s financial district – only 20 minutes by train from the center of the City.

Special Short Takeoff and Landing “Whisperjet.” Photo: Julian Herzog. Source: Wikimedia.

But there’s a problem. Executive assistants don’t like to book flights for their bosses flying out of London City. Heathrow may be crowded, busy, and hard to get to, but it’s safe. Not safer physically, but safer for their careers. It’s the tried-and-true standard. If they book a flight out of Heathrow and something goes wrong, the airport gets blamed. But if they choose the non-standard option to use London City and something goes wrong, one assistant said they “were much more likely to get it in the neck.

This is a classic case of agency issues. The principal wants to minimize travel time to be more efficient, but the booking agent is looking out for their own downside. The new option may offer a 10% improvement most of the time, but occasionally there will be a 50% downside, which could get them fired. This is the reason that established businesses often keep doing the same old same old, while start-ups – with little to lose – innovate and disrupt.

The problem with the safe alternative, in business, is that there’s little potential for growth. The boss might make nice speeches about challenging norms and thinking outside the box. But if they continually choose the status quo, don’t expect anything different. You can’t expect unconventional results from conventional choices.

What’s true in business is also true with investing. What feels good is rarely profitable, and what’s profitable rarely feels good.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2018-11-19T07:23:57+00:00November 19th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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