Yahoo! Finance and The Week The Trend Desk

As Chicago Tribune architecture critic Blair Kamin explained recently, "McDonald's is ... transforming its harsh, plastic-heavy interiors into soft, earth-toned places where you might linger with your laptop in an upholstered chair beneath a stylish pendant light."

The Starbucks-ifcation of the golden arches is another indicator of how deeply a design sensibility has seeped into American business. To survive in just about any industry today, you must be literate in design. And that's true for investors, too.

What's going on? Academics often describe graphic, interior, and industrial design as a combination of "utility" and "significance." Utility means that the product or service must work. Significance means that it must have some other, more transcendent quality.

Today, utility is abundant. We have more products and services than we can handle, and most function just fine. To stand out in a crowded marketplace, sellers must make a dramatic leap in utility -- or stand out in some other way. They can try to compete on price, but that usually ends in a downward death spiral.

So the alternative is to compete not on left-brain attributes like price and functionality, but on right-brain qualities such as emotion, meaning, and look and feel. Case in point: Target sells toilet brushes and vegetable scrubbers designed by superstar architect Michael Graves. Even the most mundane, utilitarian objects in our lives have been turned into objects of desire.

Yet the investing world has barely begun to grok this new reality. In most consumer markets, companies now make their money more from significance than utility. Motorola's Razr V3 doesn't work any better than other cell phones (trust me -- I own one). But it sure has a cooler look. And that's why it's been such a huge success. And there are other MP3 players besides the iPod and other online music services besides iTunes, so why does Apple dominate? Smart, compelling design.

Or take the Dr. Skud flyswatter, crafted by French designer Philippe Starck. This $12 device kills flies perfectly well (trust me -- I own one of these, too). But people buy it not for its bug-annihilating functionality, but for its aesthetic je ne sais quoi. Indeed, I think this flyswatter should be included in every MBA curriculum in America: Selling five cents worth of plastic for twelve bucks is further confirmation that today's margins come from significance, not utility.

Which leads me back to investing. What if we could identify companies that have integrated design into their very business model? Would they make good investments? I've taken a quick stab at doing that -- and the answer is a resounding yes.

I've identified an initial group of five publicly-held companies that differentiate based on design: Apple (AAPL), Target (TGT), Starbucks (SBUX), Motorola (MOT), and Procter & Gamble (PG). (Surprised by that last one? Don't be. P&G CEO A.G. Lafley has said many times his company "is in the design business" and that design is how the company avoids descending into commodity hell.) Turns out that these five design-centered companies have easily outperformed the S&P 500 and the NASDAQ over the last five years.

Maybe it's time for an index of companies that grasp this new competitive logic of business. Call it the DADI, for Design as Differentiator Index, to which I'd probably add the following to the five companies listed above: Whole Foods Market (WFMI), which has dramatically outperformed the indexes, and JetBlue (JBLU), which has not, as well as non-American companies such as Nokia (NOK) and BMW.

There are no doubt several other companies that understand the importance of design and who are deriving their margins from significance, as McDonald's is attempting to do with its new decor.

So let's build this index together. It's your DADI, too! Send your nominations to me at dantrend@danpink.com. I'll put the list together and report back to you in a later column.

(A few readers have pointed out that the Design Council has configured a similar index for UK companies, and that it outperformed the FTSE 100 over a 10-year period. For ideas and inspiration, check it out here.)

Fee Fi Fo ... Dumb

A Yale economist, a Harvard economist, and a Penn economist walk into a room....

No, this isn't a joke. It's actually not funny at all. A trio of economists fitting this description did walk into a room not too long ago, and they uncovered additional evidence of a disturbing trend: Individual investors don't pay attention to mutual fund fees.

In a fascinating new paper, this threesome describe a set of experiments designed to probe investors' sensitivity to fees. The researchers gave subjects prospectuses of four S&P 500 index funds and asked them to allocate $10,000 among the funds. Then they divided the subjects into three groups.

One, the control group, got just the prospectuses. The second group received the prospectuses along with an additional sheet that summarized the fees for each fund. The third group got the prospectuses along with a summary sheet that highlighted each fund's "annualized returns since inception."

Now, Yahoo! Finance readers would know what to do here. Since the index funds are identical, you put all your money into the fund with the lowest fees. That sheet about annualized returns that the third group received is a red herring. Since each fund is tracking exactly the same basket of stocks, any differences in annualized returns since inception reflect merely when the fund was started. It doesn't offer any guidance about future returns.

What happened? In the group with just the prospectuses, more than 95 percent failed to maximize their returns by minimizing their fees. But maybe that was because the fee information was buried in the fine print. Alas, more than 80 percent of the subjects in the second group -- the one that got a separate sheet explicitly listing the fees -- didn't allocate all their money to the lowest-cost fund. And the third group was even worse: These folks chased the funds with the "best" returns even though that information was irrelevant -- and they ignored the fees, the only relevant data they had.

The subjects must have been rubes, right? Uh, not exactly. They were actually Harvard and University of Pennsylvania undergraduates and Penn MBA students. MBA students!

This is really disturbing. I don't care how prescient you are about surfing megatrends or spotting undervalued opportunities in your mutual fund investments. If the fees are high, it's like having a leak in your bike tire. You have to pedal even harder to move forward. My columnist colleague Robert Kiyosaki has been especially incisive on this point. Yet it seems like people just aren't listening.

Do yourself a favor. If you're invested in mutual funds, check your fees. Today.

Follow-up: Jajah Strikes a Blow for Free Speech

This column peers resolutely into the future. But readers often ask us here at the Trend Desk to direct our gaze to the past -- to update them on what's happened with some of the developments we've already chronicled. Well, when readers say, "Jump!" the Trend Desk minions scream, "How high?"

In April, I praised Jajah, the scrappy 55-employee startup that allows people to make very cheap calls over the Internet using their regular phones. "The only downside," I complained somewhat jokingly, "is that Jajah isn't free."

Time to withdraw that complaint. Late last month, Jajah announced a new program that allows users to make calls in many places around the world -- for nothing.

According to the company, the freebie plan "applies to land line and mobile calls to and within the United States; Canada; China; Hong Kong; Singapore and Taiwan and it applies to landline calls to and within Australia; UK; Germany; France; Italy and most other European nations." Not bad. The only hitch is that both caller and callee must be registered Jajah users. But since registration is free, that's no biggie. So tell your phone mates, and be thankful you're not a traditional telecom company.

Want to suggest a trend, share a tip, or buy me a Big Mac with a side order of significance? Contact me at dantrend@danpink.com. I read every email and respond to most.