Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Succesful Investing - The power of stories


Published on

We must focus on the the facts - as Dragnet fans will recall "just the facts". Latest presentation in our series on investing

Published in: Economy & Finance
  • Be the first to comment

  • Be the first to like this

Succesful Investing - The power of stories

  1. 1. The Power of Stories “How not to be your own worst enemy”
  2. 2. Introduction Of all the dangers that investors face, perhaps none is more seductive than the siren song of stories: 1. Stories govern the way we think 2. We abandon evidence in favour of a good story 3. Stories effectively distort our mental representation of the world
  3. 3. Introduction Testing the theory on a murder trial 1. Trial conducted normally – 63% guilty 2. Only prosecution could tell the facts of the story – 78% guilty 3. Only defence could tell the facts of the story – 31% guilty So a 50% swing in guilty depending on who could tell the story
  4. 4. “The companies that show up on the screens can be scary and not doing well, so people find them difficult to buy” – Joel Greenblatt Let’s consider how we can build a good game plan…..
  5. 5. The Power of Stories We see lots of good stories:  Growth stocks with high multiples  IPO’s (but from 1980 – 2007 IPO’s underperformed markets by 21% per annum for the 3 years after floating)  Bubbles – dot-com, commodity exploration companies What happens? The most “admired” companies tend to be expensive and therefore deliver poorer performance compared to “despised” stocks.
  6. 6. The Power of Stories  People like the story and invest – often with horrible results  Stories have emotional content so they appeal to the X system (the quick and uncritical old brain)  “Despised” or bad stories, often have low prices but offer greater investment returns
  7. 7. The Power of Stories – taking the right steps There are no hard and fast rules but:  Use the logical system of thought  Focus on cold hard facts – these are likely to be the best defence against the siren song of stories Ben Graham insisted that “safety must be based on study and standards,” and that valuations be “justified by the facts, e.g., the assets, earnings, dividends, definite prospects, as distinct, let us say, from market quotations established by artificial manipulation or distorted by psychological excess”.
  8. 8. The Power of Stories – summary  Stories govern the way we think  Focus on the facts  Be wary of “admired” stocks  Don’t ignore “despised” stocks