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Every two weeks, I share my writing about investing, career transitions, parenting, and other topics that engage me. I'm just trying to figure stuff out.

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Investing Stories

Earlier in my investing career, I didn't appreciate the power of stories. I thought data and analysis were enough, but I was wrong.

There's a lot to say about storytelling in investing, describing opportunities, and understanding an investment's progress over a more extended holding period.

The case of illiquid private investments offers useful examples, but more on later.

Over time, I learned by observing thousands of well-trained management teams and analysts perform in investment meetings. The more effective presentations always leveraged powerful examples featuring customers, products, and employees.

The best communicators explained complex ideas, provided relatable context, and instilled a sense of inevitable progress from the past to a new future vision.

In his 2021 essay "Best Story Wins," Morgan Housel writes, "In a perfect world the importance of information wouldn't rely on its author's eloquence. But we live in a world where people are bored, impatient, emotional, and need complicated things distilled into easy-to-grasp scenes."

As usual, Housel nails it.

At times, I'd been frustrated by the relative importance of narrative over substance, but I fully accept this reality. Humans have always relied on stories to make sense of uncertainty. So why shouldn't this function apply to financial risk as well?

In my own presentations, I try to marry quality analysis and a compelling narrative. When done well, the combination supports one another, helping the audience understand the key points and nuances of the thesis.

Again, I refer to Housel, who writes, "Leverage is just something that squeezes the full potential out of something with less effort. Stories can leverage ideas in the same way debt can leverage assets."

While storytelling features prominently in high-stakes presentations designed to inspire action, stories also find their way into other aspects of investing.

Increasingly, the metaphor of story arcs resonates as a helpful way to view long-term holdings. When we invest our money, usually it's because we see something that others don't. We believe in a transformation that's not currently in the price.

This could be because our darling is misunderstood and undervalued by the market. Or, it's because the business grows and evolves into something more valuable.

Over a long holding period, each investment experiences a transformation. There are obstacles to overcome and lessons to learn, and the path is rarely linear.

Doesn't this sound like a protagonist in any good story?

Let's consider an example from my work investing in apartment buildings to make the point.

One negative outlier in Cove's portfolio has endured a long string of setbacks from the start. We closed on the property in Q1 of 2020 as the country went into lockdown. As a result of the pandemic, the property struggled with delinquency, faced an eviction moratorium, and felt the inflationary bite of skyrocketing labor and material costs.

The hits kept coming. Renovation delays and operational underperformance have exacerbated a difficult situation. Then, a failed sale in early 2022 forced an urgent loan extension on our increasingly expensive loan.

But it's not all bad. We've made mistakes but also done a few things right.

For one, we bought the property at a very attractive price (<$62,000/unit), which gave us a valuable margin of safety.

Also, the management team hired the extraordinary, institutional quality asset management team from Indigo Asset Services to oversee operations. Under Indigo, we've replaced our property manager with a better team. Occupancy has improved. Delinquency has declined. Renovated units garner premium pricing in the market. And we've partnered with an affordable housing non-profit to reduce our property tax liability.

So, despite the headwinds, we have reason to be optimistic. Or at least hopeful.

With investors' money at risk alongside mine, serious stakes are on the line here. And with only a few months remaining before our loan matures, our survival remains uncertain.

The stress builds with every passing day. The financial downside motivates me to keep fighting, but nothing like the fear of letting down my investors.

Isn't this what stories are all about?

Stakes. Uncertain outcomes. Transformation.

​Robert McKee, the legendary screenwriter who literally wrote the book Story describes how characters evolve in good stories, "You put them through hell. That's where characters change."

To be clear, framing investments as a story doesn't make light of my fiduciary duty and real money on the line. On the contrary, I'm keenly aware that not all stories have a happy ending.

In some ways, the story arc galvanizes our team to work even harder when the odds feel stacked against us. That's what stories do. Stories inspire us to overcome conflicts that may sometimes feel otherwise insurmountable.

Some investors may reject the idea of embracing the lens of story structure. They might want fewer opportunities for more emotion to creep into the decision-making process. But that desire conflicts with experience.

We lean heavily on stories before we invest. And we're usually guilty of creating false narratives after the fact. So why not be open to embracing the frame of the story arc in the present?

Beyond persuasion or making sense of events, the real power of story is how it helps us understand ourselves. Embracing the narrative framework allows us to grasp the complexities of our investments and the market. It doesn't ignore data or diminish analysis; it enhances them.

Other Stuff

Bad Ideas: Why Active Equity Funds Invest in Them and Five Ways to Avoid Them This short article by C. Thomas Howard suggests institutional investors are skilled stock pickers but damage performance by buying too many bad ideas ostensibly chosen to manage risk. Five ways to avoid bad ideas: 1) funds with narrow strategies, 2) narrow strategy funds with long track records, 3) best ideas across different strategies, 4) high conviction funds with fewer stocks and lower AUM, and 5) Funds with an R-Squared range of 0.60 to 0.80.

​Read the article (6 mins)

You Don’t Need More How-To Advice — You Need a Beautiful and Painful Reckoning There's something to be said for a dramatic, inciting incident to inspire meaningful change. Now we have a new word for it: "Harajuku Moment." Ferris describes this as "an epiphany that turns a nice-to-have into a must-have." It's a good article (and hits home).

​Read the blog post (12 mins)

How Nikola Jokić Became the World’s Best Basketball Player Since I don't watch much basketball these days, I recognized Jokić's name but not much else about this two-time NBA MVP from Serbia. What a fascinating guy; he has no interest in social media and avoids the spotlight, but he can apparently read the court better than anyone on the planet.

​Read the article (22 mins)

And a Farewell Photo...