It’s not just the devil – good results are in the detail too

Great ideas can lose their power if they are not properly executed, which is why medical staff wash their hands in hospitals – and value investors work hard to analyse the details of company balance sheets


Andrew Evans

Andrew Evans

Fund Manager, Equity Value

In the popularity contest that characterises modern life, ‘new’ has a habit of trumping ‘old’. For most people, new is exciting; old rather less so – and even when dressed in its best clothes, the ‘tried and tested’ reassurances of old will often lose out to new’s promises of innovation. Here on The Value Perspective, of course, we hold a rather different view and so, we were delighted to hear recently, does Atul Gawande.

We last came across Gawande in Big tick, when we discussed aspects of his 2011 book Checklist Manifesto: How to Get Things Right (2011), which highlights how checklists can help even experts avoid mistakes across a range of disciplines – from flying a plane to performing medical procedures, building skyscrapers to managing investment portfolios.

'Follow-through' vs 'breakthrough' innovations

Appearing on a Farnam Street podcast earlier this year, Gawande was asked why people – seemingly on a weekly basis – find their attention caught by the new and the novel while never being attracted by “the boring, more fundamental things that quantifiably make a larger difference”. His answer drew an interesting distinction between two kinds of innovation – ‘breakthrough’ and ‘follow-through’.

While human beings have often proved adept at the former, Gawande argued, we have no real understanding of the latter – partly because it “can seem like it’s only about nuts and bolts and not about ideas”. Looking to his own specialist field of medicine, he suggested a breakthrough innovation might be a new wonder drug while follow-through innovation would be something like medical staff remembering to wash their hands.

Sure, that may not sound as arresting as, say, discovering a cure for cancer and yet in the US alone, according to the World Health Organisation (WHO), some 80,000 deaths each year – roughly 200 a day – are associated with poor hand hygiene. In developing countries, the impact is far greater still, with the WHO estimating the risk as “two to 20-fold higher” and more than 4,000 children dying as a result every single day.

This is why the WHO has been campaigning for years for better hand hygiene in the world’s hospitals and why Gawande is now working on more effective ways to encourage the practice. They know breakthrough innovations can be hugely undermined if follow-through innovation – that is, the effective execution of ideas that have already been discovered – is ignored. Properly adhered to, however, the benefits can also be huge.

Why effective execution matters when investing

Turning to our own rather less life-and-death speciality, here on The Value Perspective, we see parallels between breakthrough innovation and growth investing. This is the exciting part of investment – searching an ever-changing world for new discoveries and new developments that will favour certain businesses over others. Of course an endeavour as ‘sexy’ as that is going to attract a lot of adherents.

Yet investment also has its follow-through innovation element – those who adopt a value-oriented approach to buying and selling companies. Value investing’s own adherents know that, for more than a century, a particular breakthrough innovation – buying cheap stocks – has yielded strong long-term results but only when the hard work is put in to ensure the effective execution of that initial idea.

Here on The Value Perspective, when we are working through the notes to the accounts of a business, say, or striving to answer the important questions relating to the balance sheet of a potential investment, this is our equivalent of doctors and nurses washing their hands – and, like doctors and nurses washing their hands, we are happy to do so because we know this discipline will lead to excellent results.


Andrew Evans

Andrew Evans

Fund Manager, Equity Value

I joined Schroders in 2015 as a member of the Value Investment team. Prior to joining Schroders I was responsible for the UK research process at Threadneedle. I began my investment career in 2001 at Dresdner Kleinwort as a Pan-European transport analyst. 

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