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Investing: the art of great story telling

March 22, 2015 by InvestingForMe

Sad to say but most investors probably accept their investment advisors’ advice like good little preschoolers at circle time. They listen and nod wide-eyed to what seems like a logical and methodical approach (and maybe even a bit scientific!) to buying and selling investments.


Uh … news flash! It’s not! Investing is all about the telling of great stories, and we, as investors have to become more aware of our part in it. We have to let go of our naïve teddy-bear listening approach to investing and take more control of the story telling circle.

The goal of a great investment story – to generate sales

Now, you have to appreciate the job of an investment advisor – or the investment storyteller, because when it comes to selling things to consumers, one of the easiest sales to make is the sale of a physical good (or product), and one of the hardest sales to make is one that involves a concept.

For example, selling a physical good such as a new car, TV, cell phone or computer is fairly straightforward. The salesperson asks you a few questions, shows you a few of the models that best fit your needs, describes the product’s technical aspects, and then negotiates the sale.

And the buyer in this physical-good scenario conveniently gets to experience the product. You can easily see, feel, hear, drive, etc., the product before you buy. And most importantly you can rely on the product manufacturer’s reputation and historical success in producing problem-free products when making your decisions. You can easily check out some well-known product rating reports such as Consumer Reports or Lemonade, etc.

However, selling a concept or idea (such as selling investments!), is not so easy. Why? Well, because as a consumer, you can’t clearly experience a concept. You can’t see, feel, hear, drive, etc. a concept before you buy. So, all you can do is hear out a story about the concept by the guy or gal trying to sell it to you.

So, what’s the best way to sell a concept? By creating and telling a great story that is well thought-out, well written and delivered by a great storyteller.

How to tell an investment story

Let’s say I’m your investment advisor and I want you to buy a particular mutual fund that invests your savings outside of Canada, something like an Emerging Markets Mutual Fund, I have two ways to approach my sales pitch or story.

One approach would be where I start by being straight up about how much I really don’t know about the mutual fund and I might say a bunch of things like this:

  • We can’t rely on the fund’s past performance as a guide to what it will do in the future, because forecasting is unreliable in the investment business, but the investment analysts think it will make you money.
  • I don’t know if the area where the mutual fund invests will actually be profitable, but we think it's a great idea.
  • The mutual fund managers will take your money and buy foreign companies that do not operate in Canada and whose shares are traded and regulated in countries that are small with under-developed economies and financial systems, but we think you’ll be rewarded for taking on the extra risk.
  • I don’t personally know the investment managers, but they seem to be experienced and have lots of letters after their names.
  • I’m not at all sure the fund will go up in the future, but I think it’s worth a go, so what-da-ya-say?

Wow! Can you imagine an advisor actually giving you a lousy sales pitch (or story) like that? Not likely! But while all of the points above are true, that investment advisors really don’t have any idea how a mutual fund will perform, how likely would you be to buy the mutual fund from a story like that? Probably not very likely, right?

So, that’s why investment stories don’t get told like that. Instead, if I’m really going to get you to buy the Emerging Market fund, I need to get you excited and motivated. I need to tell you a better story using a better approach more like this:

Look, I need to talk to you about an investment idea the firm is really excited about and our analysts' project will boom over the next ten years or more. It’s an investment I think we need to take advantage of in your portfolio – today.

Let me tell you about it.

As you know, technology and globalization has opened new doors and created new opportunities for countries that are less developed than Canada, the United States and Europe. Countries like China and India are beginning to boom. With their huge populations and cheap labour force, more and more companies are shifting their manufacturing overseas. This trend is creating a massive number of new jobs for the Chinese and Indian people and with this increased employment comes increased demand for goods they produce and leading to faster growth in their economies. In addition, because the Chinese and Indians can make products for so much less than competitors in the U.S. and here in Canada, the West is going to buy more and more from them, just adding more fuel for their economies to grow even faster.

The mutual fund I want you to invest in looks good for the following reasons:

  • It has an impressive history of making money. It had investment returns of 11% and 13% in the past two years.
  • It only invests in the fastest growing sectors inside China and India.
  • Not only are the fund managers that run the mutual fund some of the best in their field, but they also employ specialists that live and work in China and India. This gives the fund managers a special insight into opportunities as they develop and before they take off.
  • I’ve met the fund managers and they’re all experienced investment managers and they include Chartered Accountants, Chartered Financial Analysts and MBAs.
  • The mutual fund has an acceptable investment risk rating of “Medium.”
  • Finally, the firm and our analysts’ think this mutual fund is going to do really well. In fact, the fund is trading at $12 right now, and our analysts’ project that it can go to $19 in the next couple of years.
  • So, I think you should invest in it today.

Now, doesn’t that sound like a much better story, not to mention a much better investment idea? Who wouldn’t want to invest in such a great opportunity as this! You’d be crazy not to, right?

The investment story authors

Since investing is a tricky game of storytellers, a wise investor needs to know who’s telling you the story and how. In our investment world, the big Bay Street and Wall Street investment firms are the major authors of our investment stories. But the investment industry doesn’t like to call them stories. That doesn’t sound very sophisticated! They prefer to call them investment themes. (We all know a few of them. For example, remember “Peak Oil”, “Gold’s going to $10,000” and that old standby “Interest rates are about to rise!”)

And after decades of selling investments to you and me, they have refined and perfected their craft of telling investment stories. And no one understands better than they do that if you’re going to invest with them, they need to tell you a great story.

The storytellers (or the middlemen)

In Canada, it’s estimated that there are over 110,000 investment professionals actively giving advice to individuals like you and me. And in the investment world they are our storytellers. They are the middle people that spread the word of the investment authors.

Their job is simple. They must choose the stories that best help us to make an investment decision – to buy and/or to sell.

It doesn’t matter if it’s your person at the bank or credit union, your broker or insurance agent, when it comes to investing your savings, you’re going to be told stories. So your job as an investor is to understand that you’ve been invited into their circle time, and that the stories have been crafted to help the company representatives sell you an investment.

Be more than a preschooler investor: learn how to listen more critically to investment storytellers

So, let’s now keep in mind that when you want to buy an investment, you’re really just buying into a concept where someone wants to sell you a good story. A story that has been crafted to motivate you to action.

So, in order to make more educated investment purchases, you need to learn listen more critically when you enter into the story circle. You need to ask the storyteller and yourself some concrete questions about the tale you’re about to be told (or sold!).

Here are a few points to help you listen more critically to investment storytellers:

  1. Investment stories (themes) are an easy way to describe an investment, but they are also written as a sales tool. The story has been crafted to make the salesperson’s job easier and to help you toward the decision to buy or sell. So ask yourself, do you buy this story? Could there be better stories or “themes” out there that match your needs better such as an investment where the fund managers are not as risky with their investments?
  2. When the story uses a bunch of numbers and facts, ask more questions. Dig into how the numbers were calculated. Go online and research those same numbers and facts. See what other investment advisors are forecasting for this same type of investment, and then ask yourself how does your advisor know that they can safely make projections based on those numbers for the future. What are other advisors predicting?
  3. Remember the story that you’re being told and all of its numbers for future reference. For example, if you buy the investment and the story fails to unfold as originally told to you, then go back and ask why. Ask what went wrong. Hold the storyteller to account! Let your storyteller know you’re listening, and you see that their stories aren’t adding up. After all, you relied on their story and put your savings at risk because of it! On the other hand, if the investment does go up in value, make sure the increase was because the story unfolded as told and not for some other, unforeseen reasons. Tracking the story and your investing results will help you to distinguish between the real investment stories and simple sales fiction as told by poor advisors in the future.

Moral of the story

As with many other important aspects of life, wise investing also requires you to be able to think critically. Don’t just sit there and take in the pretty pictures someone wants to sell you. Ask yourself whose investment “themes” (or stories) best match your values and so deserve your carefully earned investment dollars. Who do you trust most to help get you to your investment goals? Take the time to dig a little and become a more educated investor.




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