Chapter 5 : Narrative and Stories


Stories are the single most important weapon in a leader's arsenal

Howard Gardner

Narratives, Numbers and Valuation

The Narrative is and should be the starting point for each valuation. It then helps you to define the detailed story, aiding you in directing the numbers and therefore, value. It is the most important component of valuation. Is it what you are trying to say or what you believe in? This is the mantra of a valuation.

Then, we attempt to convert the narrative into numbers and valuation. A narrative should help you to forecast sales growth, margins, investments, and risks. Every story should have a number attached and every number should be supported by a story.

Most narratives are picked from leader's statements, annual reports of the company etc., or are just a smart analyst's predictions or positioning.

Remember the movie "Wolf of the Wall Street" ? You must have seen the difference in the presentation between Steve Madden and Jordan Belfort.

While the shoe genius himself seems wavering about the significance of this legendary shoe that "put him on the map," Jordan Belfort (played by Leonardo DiCaprio) takes over with his strong sense of conviction in the 'creative genius' who is capable of 'creating trends'. His story of how Steve Madden's stock is the ticket to the chocolate factory makes the brokers believe that he truly, absolutely wants to make them rich by dealing in this untapped penny stock!

Once you are able to define what you want to say, now start connecting the numbers to your narrative.

This reinstates the fact that when you invest money in stocks, you are buying a piece of the company itself, thus owning a very small percentage of it and it would be wise to know what you own and why you own it.

The narrative could be based on a macro story, industry dynamics, policy, country dynamics, company strategy, technology change, disruption, or anything that affects the projected numbers. It is what you are trying to say!

For instance:

  • Tesla is creating the most compelling car company of the 21st century by driving the world's transition to electric vehicles.
  • Nestle will beat the global GDP due to its competitiveness and new product launches.
  • Royal Enfield, an iconic bike, will be a significant player in the global mid-sized motorcycle market where it presently is a dominant player only in the Indian Market.

The Narrative is and should be the starting point for each valuation. It then helps you to define the detailed story, aiding you to direct the numbers and therefore, Value.