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Wealth Wise

We are not hard-wired to invest

Head of Investment at Alpian
Victor Cianni
Group 7 Article, 3 min read

Working in the financial industry, I have had the privilege of discussing wealth-related topics with people from diverse walks of life. Billionaires, entrepreneurs, celebrities, family members, friends, or even at cocktail parties. All with very different situations, aspirations and perspectives on money. Regardless of their wealth, one thing always stood out.

We humans are not programmed to invest…

We are good at saving and spending, formulating plans with our money, but not at investing. There are exceptions, of course. We all know a few born investors around us, but for most of us, not investing is the default behaviour. And we have long wondered why. Here’s one potential reason.

By definition, investing means accepting to give away something, our money, in exchange for the promise to get it back later, with a little bit more.

By definition, investing means accepting to give away something, our money, in exchange for the promise to get it back later, with a little bit more. I urge you to read that once more. Unless you are an incurable optimist, you might be experiencing a strange feeling of suspicion. And why wouldn’t you? Giving away your money and all the potential benefits that come with it, just for a hypothetical gain? Some questions might already be popping into your head:

  • “How big is the gain?”
  • “When will I get my money back?”
  • “What will you do with it?”
  • “What are the risks? Can I lose my money?”

There are too many unknowns in this proposition, too many factors that are out of reach. After all, financial markets offer every day evidences that investments entail risks. What seems like a hypothetical gain on the paper could turn out to be a loss for the investor in reality! Hence the doubt. In technical terms, investing involves delayed gratification and risk, two notions we always struggle with.

…but we are programmed to listen to stories!

Now let’s say you got an answer for each question asked:

  • “The potential gain is 20%”,
  • “You will get your money back plus interest in 2 years”,
  • “Your money will help finance a company about to launch a new vaccine”.
  • “The risks are the following:….”

Interested? You might even start crunching numbers in your head:

  • “This gain for this period means a 10% annualized return”.
  • “The chances of not getting my money back are only 5%”.
  • “With the return earned, we could buy the car we need”.

If the numbers are good and the explanations credible, something magical happens: a story emerges. Suspicion becomes excitement. A long shot seems within reach. And when the “potential” benefits of the proposition seem to outweigh the inconvenience and risk of investing, a door unlocks in our brain, and we begin to imagine new possibilities.

“Economic narratives are contagious, they suggest scripts for people to follow, they repeat their messages, and they thrive on human interest”.

Why are investment stories so powerful?

According to Nobel prize-winning economist, Robert Shiller, stories play an important role at an individual level, and at the scale of economies. As he puts it: “Economic narratives are contagious, they suggest scripts for people to follow, they repeat their messages, and they thrive on human interest”. Every day, new stories emerge and spread, drawing you to invest. Stories around innovation stocks, cryptocurrencies, clean energy etc. act as a powerful catalyst: they mix facts, emotions and interests, and form an impression on your mind. The more stories you hear the more you expand your set of possible actions.

Why should you deconstruct stories?

It is important to understand how stories resonate with you, and the kind of actions they prompt. To reverse engineer facts from stories, I reached out to Nitin George, Senior Concept Developer at Foundry Berlin, a communications agency that specialises in storytelling for brands. He was more than happy to shed some light on the subject.

What role do stories play in marketing?

There’s a piece of advice given to most businesses: when someone buys a drill bit, what they really want is a hole in the wall. Customers are buying the outcome and not the product or service itself. Of course, no one wants a hole in the wall either. The hole in the wall is perhaps to hang a mirror. And beyond that, they probably want that mirror to stay on the wall for a long time. So, they’re really shopping for confidence. A story can help brands connect the best features of their products and services to the functional, emotional, and social benefits that customers seek.

So, the features of a product are the facts, and the benefits are the story?

Benefits are part of the story, yes. But stories are also used to communicate a brand’s values to customers. We are more likely to buy from brands that represent our set of values or have a vision of the future that aligns with our own. In the words of Simon Sinek, “people don’t buy what you do, they buy why you do it”. Authentically communicating purpose to customers has proven to be highly effective for companies over the past few years.

Great! What if we want to reverse engineer a story to uncover underlying facts?

Sure, that’s possible. But let’s first understand what a story does. On one hand, stories help us simplify complex ideas, and illustrate how a fact can be relevant or beneficial to our lives. On the flip side, we are all prone to inherent biases based on our values, feelings and experiences.

To deconstruct a story is to understand the layers that form the fiction around the facts.

Ok, so how can we separate the two?

The stories we tell ourselves are very much like brand stories. We are quick to visualise the result, get swayed by our vision and often give in to confirmation bias. Since our brains love jumping to conclusions, we need to slow down and examine the data we’re dealing with. Asking a few questions might help:

  • How much of what I know is verifiable and can be categorised as true or false?
  • How much is hypothetical or based on my assumptions?
  • What do I qualify as ‘good’ or ‘bad’ and why?

For example, let’s say you’re considering investing in a new ride-sharing app that promises a more sustainable society. We can easily verify if this is a ride-sharing app. But has the service given us any reason to believe that it makes the world more sustainable?

A little digging might reveal that the vehicles used are eco-friendly. Or we might find that users regularly complain about older, polluting vehicles. In both cases, questioning our assumptions could lead us on a path to discover more information before we form our opinions.

Making Friends With Investment Stories

The role of stories is vital in keeping us motivated and inspired. Examining and dissecting them gives us another powerful tool – the ability to remain objective and build a real investment thesis to make an informed decision. If you apply these principles to the investment stories you hear, what do you find? We’d love to hear your thoughts below.

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Disclaimer:
Alpian has submitted an application for a full banking license to Switzerland’s Financial Market Supervisory Authority (FINMA). Content of this publication is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.

Group 7 Article, 3 min read
About the author
Victor Cianni
Head of Investment at Alpian

Victor has more than 13 years of experience in wealth management. He has assisted many individuals, families, and institutions in their financial journey throughout his career, either by providing tailored advice on their investments or by managing assets on their behalf. He occupied a number of key positions within the investment divisions of CA Indosuez, Lombard Odier, and Citi Private Bank. He holds an Engineer’s degree in Bioinformatics and Modeling from the Institut National des Sciences Appliquées of Lyon, and he is a certified FRM. In his free time, Victor loves scientific readings and collecting rare books.