Forbes, of all places, has the article Clayton Christensen: How Pursuit of Profits Kills Innovation and the U.S. Economy.

Christensen recalls an interesting talk he had with the Morris Chang the chairman and founder of one of the firms, TSMC [TSM], who said:

“You Americans measure profitability by a ratio. There’s a problem with that. No banks accept deposits denominated in ratios. The way we measure profitability is in ‘tons of money’. You use the return on assets ratio if cash is scarce. But if there is actually a lot of cash, then that is causing you to economize on something that is abundant.”

Christensen agrees. He believes that the pursuit of profit, as calculated by the ratios like IRR and ROA, is killing innovation and our economy. It is the fundamental thinking drives that decisions that he believes are “just plain wrong”.

Back in the 1960’s, when Morris Chang was the VP of the division of Texas Instruments where I worked, I thought he was a wise person. Over the years, I have had no reason to change that assessment.

I think the investment strategy that I have adopted fits in with the lesson here. My investment in dividend paying companies does try to maximize current income, but I also look for income growth. It is the growth factor that keeps me from just looking for companies with maximum present day dividend yield. To get long histories of dividend growth, the company has to grow. It cannot depend on maximizing short-term profits. (Or am I kidding myself?)