We all love to hear stories. Does this help our investments?
People seem hard-wired to listen to a good yarn. From the Bible to Beckett, literature has documented the rise and fall of kings, kingdoms, and communities. Shakespeare said that all the world’s a stage, but what he didn’t say that it’s a stage on which we tell story after story after story. And we seem to love it.
When we look at investments, we see a host of stories: the embattled CEO trying to turn her once-great company around; the innovative tech-savvy geek who starts his dream in a garage; the state or national government that needs money to fund its operations.
The stories we listen to can help us understand the world and give our lives meaning. But when it comes to investments, stories can be as misleading as they are meaningful. Because an investment portfolio is not a novella. It’s a collection of rights to someone else’s cash. It is ultimately a group of legal claims, described in economic and mathematical terms. While each investment may have a tale to tell, in sum they need to serve a higher purpose.
Constructing a portfolio that fits each investor’s objectives is a process of fitting little stories into a bigger story. So while “story stocks” may seem attractive, it’s the investor’s story that matters.
Managers shouldn’t be telling the market’s story. They need to listen to the client’s story. That’s what real service is all about.
Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!
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