Investment Decisions Aren’t Based on What You Do

My wife asked me to pick-up Diet Coke at the store for her the other day. Unfortunately for me, they were all out so I faced a pretty big dilemma. Do I get her regular Coke or Diet Pepsi? Maybe Yoo-Hoo. I mean, who doesn’t like a fun surprise like that?

In 27 years of marriage, I have been ‘right’ exactly three times in situations like this. Since pride prevented me from calling her, and I am far too cheap to buy more than one kind of soda, I panicked. Other than water, it’s literally the only thing she drinks. Messing this up had serious consequences.

I quickly ran through the attributes that matter to her most when choosing a beverage. In order of priority, the drink needed to be: carbonated, low calorie, artificially colored and sweetened (definitely none of that “natural” stuff), and from one of the big brands that she ‘trusts.’

Using my considerable powers of deductive reasoning, I ended-up with Diet Pepsi – which to my relief – she agreed was the best choice (yeehaw! fourth correct decision).

What I still don’t know is why.

Not ‘why’ does she choose to fill her body with a beverage she knows is unhealthy, or even why she bothers staying with me at all if I am only right once every 7 years.

No – the ‘why’ I don’t get is why the intense loyalty to Diet Coke over all of the other diet, brown-colored sodas. There are literally dozens of alternatives that exist (including Coke Zero – another ‘why’ I will never understand) – and they all taste pretty much the same, right? So, why Diet Coke?

That intense loyalty is the essence of brand. And here’s why you care…this idea of what she is willing to buy – or the reason why she is willing to buy it – is not just a beverage thing. It’s not even just a consumer thing. It exists almost everywhere – including asset management.

Actually, in some ways, it’s probably more of an asset manager thing than even a consumer products thing. Think about it…consumers can buy practically whatever they want without any restrictions – they don’t even need a reason. Most institutional investors, on the other hand, actually cannot.

Institutional investors are often strapped with rigid constraints that totally limit their flexibility. Potential investment opportunities must fit into a nice, tidy bucket to be even considered. And the criteria for inclusion into the bucket can be extensive. Doesn’t matter your pedigree or how incredible your performance is, if it doesn’t check the right boxes, it doesn’t get into the conversation.

The point is – their choice is so restricted that almost no thought is required to determine if a fund is eligible for consideration. It either meets the requirements or it doesn’t.

The reason I mention it is because it fascinates me that with all of the marketing decks we work on, how much of a manager’s time is focused on describing the what of their strategy and process instead of the why. After all, you are what you are. Meeting the initial requirements related to what you do takes like two-minutes of the allocator’s time. You either belong in the soda aisle or you don’t. That decision is essentially out of your hands. Embrace it – and move on.

The hard part comes after that – when they start filtering against all of the other funds that are being considered because they also checked all of the boxes. This part of the allocator’s decision requires a lot more thought – and it’s surprisingly much more in your control than you may imagine. It is no longer a question of what but why. Specifically, why should the prospective LP care about your fund, why is your offering a more compelling fit for their needs than your peers, and why should they be willing to risk their firm’s assets or even potentially their career on you?

And the initial response to these all comes back to that same thing that drives my wife to choose Diet Coke over the other sodas – brand.

See, a brand, developed properly, will address all of those questions almost instantly. You prove it to yourself every day. Think about what happens when you see names like Bridgewater, Goldman Sachs, or Google on a resume. You likely make an immediate assumption about the quality of the candidate by mere association to the name – justified or not. Great brands have taken it even further – they just have to show you a “swoosh” or a partially bitten apple, and BAM!, a flood of thoughts and feelings just hit you.

The name and logo are not the brand – they are all simply a reflection of what the brand stands for and the relatable values that drive each of those businesses. It’s the DNA of the company and its people. When done right, the name or logo on their own become synonymous with these values. And just seeing one or the other evokes a Pavlovian-like emotional response.

And even in an industry like ours where traditionalists still believe that anonymity creates mystique, you still want those that are familiar with you to associate your name with your values. The more intense the emotional connection, the better.

Keep in mind, my wife didn’t send me to the store to buy ‘some soda’ – she sent me to buy ‘Diet Coke.’ Being the generic store brand that no one cares about really isn’t as cool as it sounds.