“Storytelling,” argues Yuval Harari, “is the basis for everything we do as a species”. We think and create in story form. Be it fiat currency or a sports team, intangibles exist because we share a common narrative about them. Businesses are stories. Founders and CEOs are stories. The question is, how to invest in stories.
Let’s focus on the story type we all know intimately: the hero’s journey. Upheaval threatens our existence. The hero-to-be accepts a call to action. Aided by wise mentors, he or she gathers allies and enemies, and finally slays the monster.
This is why we cry at the same points in The Lion King and Hamlet. Pick your favourite hero, and some version of the hero’s journey applies.
So, people are moved by hero stories. But the question was how to invest in hero stories. Well, we do it naturally. David Tuckett runs the Centre for the Study of Decision-Making Uncertainty at University College London. He has mapped the way that even the most quantitatively minded hedge fund hotshots use narrative to make investing decisions. As he puts it, “the currency of financial decision-making is narrative”. We draw on data, then conjure and compare stories of what companies will do in the future. We act based on the most compelling story.
I’m puzzling over two potentially investible hero stories among UK shares. First, consider hedge funds as an asset class. There’s a hero’s journey there. Being alternative assets, run by people so good they can bet against the market, these near-mythical beasts are super-smart free thinkers challenging everything boring and conventional about stock exchanges. At least, that is how they’re played in popular culture. And there is value in that.
Legendary American “hedge fund guy” Bill Ackman is the face and brain of FTSE 100 firm Pershing Square Holdings. For me, the outspoken, chisel-jawed billionaire Ackman is the arch hedge fund hero.
Second, a different shape of hero, Tim Martin. I learned the cult of the Wetherspoon founder and chairman while tending a ‘Spoons bars on my gap year. Martin’s arresting shock of hair, embrace of public transport, and apparent relish for outspoken stances on the most controversial topics certainly make him an intriguing story.
Martin’s heroic journey may be partially apocryphal. The Ugly Duckling plot says one Mr. Wetherspoon, a geography teacher who told a young Martin he’d “never amount to anything”, thereby inspired the precocious lad to prove the world wrong and helped inspire him to become a qualified barrister turned quirky business genius on the Clapham omnibus.
That this signature tale may be embellished doesn’t break the investment thesis. Every story is a flawed representation of the truth. But this principle flags a caveat. “How to invest in stories” demands also “How not to invest in stories”.
Bernie Madoff’s Ponzi scheme was all narrative, no reality. More common are shadowy blends of facts and falsehoods. For many, “bright-eyed, female Stanford dropout develops blood testing technology that will change the world” was a compelling reason to buy into Elizabeth Holmes’ Theranos. The true half of that story eventually collapsed under the myth that the machine worked.
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Ian Macleod has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.