Process versus Outcome

Process: a series of actions or steps taken to achieve a particular end or outcome.

Associate Justice of the Supreme Court John Paul Stevens passed away last year on July 16, 2019, at the age of 99.  The final opinion Justice Stevens wrote for the court was New Process Steel, L.P. v. National Labor Relations Board, argued and decided in 2010.  Bloomberg columnist Stephen L. Carter wrote that the “case arose from the refusal of the Senate to confirm President George W. Bush’s nominees to the NLRB. With the terms of other members expiring, the board basically delegated its authority to as few as two members who would remain to take action.” [1]

Stevens wrote in that opinion:

If Congress wishes to allow the Board to decide cases with only two members, it can easily do so. But until it does, Congress’ decision to require that the Board’s full power be delegated to no fewer than three members, and to provide for a Board quorum of three, must be given practical effect rather than swept aside in the face of admittedly difficult circumstances. Section 3(b) [of the NLRB enabling statute], as it currently exists, does not authorize the Board to create a tail that would not only wag the dog, but would continue to wag after the dog died.[2]

In this case, the NLRB had a process, created by Congress in 1935, to, among other things, adjudicate labor disputes, that required a quorum of three members.  According to Robert’s Rules of Order, “a quorum is a protection against totally unrepresentative action in the name of the body by an unduly small number of persons.”[3]  Carter concludes: “The process by which a decision is reached is as important as the substance.”

Process matters.  It matters as much as the outcome.  Don’t believe me?  Think of the best vacations you’ve ever taken:  Would they have turned out nearly so good without all the detailed planning effort that went into making it happen? Or imagine what manufacturing process is required to produce that smartphone or automobile we rely on every day.

When it comes to investing, process might matter even more than the outcome.  Let’s take an extreme example.  Suppose someone shows you the track record of a strategy with exceptional investment returns.  You’re naturally curious, maybe even excited, to learn more about how those returns were achieved.  But then you’re told that the returns were produced by a monkey throwing darts at the Stock Tables in the Wall Street Journal.  The results, while impressive, were purely the result of chance, and not due to any particular stock-picking ability.  A different dart-throwing monkey could have produced horrendous investment returns over the same period.

In reality, there is an element of luck in almost all human endeavors.  That perfect vacation you recalled  a few seconds ago might not have made the list if, say, the weather had been different or someone got the flu the day before departing on the trip.  Likewise, there is always an element of luck in investment management as well, but successful investment managers employ their stock- or bond-picking skills in an intentional, disciplined manner, such that, over long periods of time, their investment outcomes are more influenced by skill than by luck.

Investment strategist Michael J. Mauboussin writes “investing is a very competitive activity, and luck weighs heavily on the outcomes in the short run.”[4] Jacques Lussier, PhD, CFA, adds this observation in his excellent book Successful Investing is a Process, that “no management style or process consistently outperforms.  Thus, good managers will be made by the market to look bad every so often, and bad managers will be made to look good.”[5]

Nevertheless, managers who consistently “stick to their knitting” will produce successful results for their investors over long periods of time.  These are the managers who have a well-thought-out statement of their investment philosophy and process, detailing how they will achieve their investment objectives.

Here at Coyle Financial Counsel, we believe that successful investment results are those which help our clients achieve their long-term investment goals.  To that end, we hire investment managers that have an experienced team of investment professionals who operate within a well-defined investment philosophy and process, all designed to achieve their stated investment objective within the appropriate segment of the market.  While past performance is no guarantee of future results, we carefully monitor each manager to ensure that their results are in line with our long-term expectations.

I don’t know about you, but, as a dog lover, I’d much rather see a dog wagging its tail any day, than the other way around.


John serves as Chief Investment Officer for Coyle Financial Counsel and is responsible for overseeing the investment process. John’s prior experience includes managing institutional fixed-income portfolios for corporations, pension funds, non-profit organizations and foundations at several large, global asset managers. With more than 20 years of institutional investment experience, he is energized by helping individuals understand the role investing plays in meeting their long-term financial goals.
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All information is from sources deemed reliable, but no warranty is made to its accuracy or completeness.   This material is being provided for informational or educational purposes only, and does not take into account the investment objectives or financial situation of any client or prospective client.  The information is not intended as investment advice, and is not a recommendation to buy, sell, or invest in any particular investment or market segment.  Those seeking information regarding their particular investment needs should contact a financial professional.  Coyle, our employees, or our clients, may or may not be invested in any individual securities or market segments discussed in this material.  The opinions expressed were current as of the date of posting, but are subject to change without notice due to market, political, or economic conditions.

Copyright © 2020 Coyle Financial Counsel.  All rights reserved.



[3] Robert’s Rules of Order §3, p. 20 (10th ed. 2001)

[4] The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing, by Michael J. Mauboussin (Harvard Business Review Press, 2012)

[5] Successful Investing is a Process, Jacques Lussier (Bloomberg Press, 2013)


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