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.
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.