Aswath Damodaran, a Professor of Finance at the NYU Stern School of Business wrote a book called Narrative and Numbers. In it, he addresses why multiple companies that have never turned a profit can register multibillion-dollar valuations. He argues that a good story drives corporate value, much as sound number crunching can.
When it comes to personal finance, we as nerds have this overemphasis on numbers and tend to either underweight or completely ignore the story part. You can bet I’ve made this mistake myself. When I started buying stocks, I would foolishly focus on the numbers alone and totally ignore company prospects.
For example, I would look at a stock like Safaricom and balk at buying because its PE ratio was “too high”. Or because dividend yield was “lower than justified”. If I had considered the story side of the stock, I probably would not have thumb sucked as much as I did – finally buying the stock at 24.50, after it became obvious my stubborn and exclusive insistence on number-crunching was not cutting it. My final trigger to buy Safaricom was not the stock hitting some magical ratio. It was when I saw them digging up all over laying home internet fibre and sticking free connection ads on estate gates. That was already too late, one would argue.
We also tend to obsess over figures at the expense of our life narratives when it comes to trying to grow our net worth. Good returns on assets are good and low-interest charges on our debt is a great way to expand the nest egg, but stories have an important if not critical role to play in long term personal finance. What do I mean?
Suppose you get so nerdy that you track every cent, weed out any wastage and cut back to the bare bones. All these are things we can reasonably expect someone who is laser-focused on financial freedom to do. But if not carefully executed, such aversion to expenditure might turn one into a penny-pinching recluse who is more inclined than not to shun important relationship-building engagements that might involve spending money. Everyone knows someone like that. Someone so consumed by optimizing nickels and dimes that they have not much room left in their mind for sense.
We must acknowledge that while number crunching and numerical optimization might get us far, our personal brands and personal stories will take us farther.
Elon Musk doesn’t get millions of dollars’ worth of car pre-orders and billions worth of investor funds by virtue of his bean-counting abilities. Rather, his customers, investors, cheerleaders and even “haters” acknowledge the man is tremendously goal-driven, gets the job done no matter what, and is incomprehensibly persistent. If Elon Musk says you will soon be able to download cooked meals on your phone, you don’t go arguing. You ask where to send the money.
So even as you crunch numbers, you had better recognize the importance of going out there and buying great books, meeting people and building relationships. Drill on your work ethic. Work towards being a dependable person, learn empathy and be someone that inspires trust. Punching numbers has its place, but it is not an excuse not to build a great story around yourself.
It shouldn’t surprise you that Warren Buffett, being the bare-knuckled capitalist and astute investor that he is, has repeatedly made it clear that he attributes his success to a $100 Dale Carnegie public speaking course he completed in 1952. He says the course is the most important degree he has ever received in his life and the reason for his success. His number one book recommendation is not some sophisticated text on financial modelling or stock valuation, but Dale Carnegie’s “how to win friends and influence people”.
Bottom line, there is no running away from the fact that long term personal financial success will be tough – if not impossible – to achieve by just math and payback periods and PE ratios and interest rates. Build a great story around you and create a brand for yourself. It does not have to be eccentric – even simply being a dependable, trustworthy person is enough to get you ahead in an environment where mistrust and disloyalty are the norm.
Think about your brand story. Do not crunch numbers to death.