In the investment world you will constantly hear people talk about the
“story” behind the stock or company. Some stocks are also referred to as "story stocks" which Investopedia refers to as the following: "A stock whose value is a reflection of expected future potential (or favorable press coverage) rather than its assets and income." If
you’ve done your homework, thoroughly analyzed a company, and played devil’s
advocate then you should be able to tell a thoughtful story that gives the pro’s
and con’s of a particular investment.
However, what tends to happen is that the analysis is not thorough
enough or people only point out the parts that they agree with. Many investors end up telling stories that
only include the positives or minimize the risks. On the opposite side, short sellers will tell
stories about why an investment is likely to do poorly, but tend not to tell
you what the positives are. I find that journalists do this all the time as
well, as they will take one side of the argument and not inform readers of all
the aspects of a particular event. If you think back to the dot-com bubble of
the late 90’s there were lots stories being told. Many were about how this time is different,
valuations don’t matter, they shouldn’t be valued on their cash flow but on
clicks, etc. That ended badly as many investors got burned by these
stories. However, things have not
changed as all you have to do is tune into CNBC and you will hear all sorts of
simplistic and incomplete stories. My
best advice is when you hear a story that you like, also listen to people who have
the opposite view telling you why it is not a good investment; that way you get
both sides.
Another area where stories are abused, misused, and misleading with
powerful effects is in politics. It
doesn’t matter if you are a Republican, Democrat, Green, Independent, etc. most
politicians tell misleading, half-true, imaginary, or incomplete stories. Politicians also use stories to get you
emotional and tend to only use the “facts” that agree with the story they want
to tell. It doesn’t matter whether its investments, politics, or something else
beware of overly simplistic stories as they tend to do more harm than good.
