In 1845, Austen Henry Layard, Sir Henry Rawlinson, and Hormuzd Rassam began excavations across what is now Syria and Iraq. They discovered stone fragments that were eventually pieced together in 12 tablets and preserved in the British Museum. Of course, no one knew what it said.
English archaeologist George Smith taught himself Sumerian and literary Akkadian and embarked upon the task of deciphering the script. The cuneiform alphabet was incredibly difficult to translate. Fortunately, Smith eventually cracked it and discovered that the symbols were describing a story: The Epic of Gilgamesh. It is said to be the oldest piece of written literature in the world.
Humans love stories. We have been telling them for thousands of years in various formats. It was how information was passed down to generations. Cave paintings depicting dramatic scenes were probably accompanied by oral storytelling. Folk tales shared around the fire. Reading Aesops Fables as children. Watching Harry Potter as a teenager and graduating to Netflix dramas as adults.
Narratives are an intricate part of the human existence.
Stories inform us about other people and races and cultures. They teach us empathy. They are concerned with moral decision making. They present us with social dilemmas to intellectually wrestle with (remember how we used to discuss Game of Thrones?). They give us hope and meaning in a world full of uncertainty. They help us make sense of chaos.
On the flip side, humans are inclined to see narratives where there are none. And therein lies the danger.
If I tell you a story cautioning you about survival, you’ll be more likely to pay heed than if just presented with facts. For instance, if I were to say, “Don’t sit under the tree once it gets dark cause there could be creatures here,” would not be as effective as, “I know someone who bitten by a snake that coiled around his neck and strangled him to death under that tree.”
A narrative that presents facts and evokes emotions, is much more effective in engaging a listener than facts alone. Jennifer Aaker at the Stanford Graduate School of Business, says that stories are up to 22 times more memorable than facts or figures alone. In neural coupling, the listener receives the story and makes the idea or concept their own. Apply that to investing and advertising, and there is a high probability of you getting manipulated.
When used rightly, a story can be persuasive enough to move people to action, and become a tool of power.
Ask yourself what story you are buying into. It is much easier to convince yourself when you have weaved all the information into a story.
Devina Mehra of First Global recently shared four amazing insights on this very subject in a CNBC interaction.
Buying into a story can derail you from your goal of wealth creation. We do that with a New Fund Offering, or NFO. We do that with a stock we own. Company X has a great brand, it manages logistic brilliantly, it knows its target audience, etc etc. But there is more to investing than a story.
- The market does not care about your well-crafted story. No matter how often you repeat it to yourself and believe it.
- A story normally has a cause, an effect, and an end. You don’t get a movie that has a 60% probability that the hero and heroine will get married to each, a 30% probability that they will marry other people, and a 10% probability that they won’t marry at all. Is investing that simple? Life, and investing, is about probabilities and not deterministic. It is not a movie with a carefully written script.
- A story can sound great but be inaccurate and extremely under analysed. You need to do the number crunching. You need to examine hundreds of financial parameters. There are business decisions that can change the expected outcome. The consumer is evolving, so is the competition.
- The problem arises when we are too invested in our stories. They take on a life of their own and our ego and self worth and net worth are inextricably linked to it. A good story can derail not only the audience but also the storyteller. Take Warren Buffett and Coca-Cola. A great story; one of the world’s strongest brands, predictable cash flows and so on. But if you look at Buffett’s investment in that company from 1993 to 2020, it only went up 8x, while the S&P went up 13x and PepsiCo went up 30x. In an interaction in 2018, he admitted: Coca-Cola is still a very good business, a brand, good return on tangible assets – but it doesn’t look as good as it did 5 or 10 years ago.
Humans are storytellers. It is our nature to make up stories, to interpret everything we perceive. Without awareness, we give our personal power to the story and the story writes itself. - Miguel Ruiz
Ensure that you control your investing narratives, and they do not control you.
Just because you believe the story, does not make it real. Even if it is real, it may not be forever.
Don’t get married to your story, challenge it. Once you refuse to change your mind about the company, you are walking on thin ice.
