Here on The Value Perspective, we are forever reminding people we cannot forecast the future on the fairly solid grounds that, well, nobody can. At this point, whoever we have told will nod sagely and then ask something along the lines of what we think will happen to markets should the UK vote to leave the European Union or Donald Trump become the next inhabitant of the White House.
As it happens, we completely understand this response, just as we understand people will also ask us about past events – for example, why we think commodity-related stocks have rallied so strongly of late. We understand this because we know people love a story – even if it involves trying to predict an unpredictable future or infilling random past events with emotion, personal bias and hearsay.
Predictions and emotion and the rest are of course things we, as value investors, do our best to avoid – and indeed why we shy away from stories. Nevertheless, as keen students of behavioural finance, we are always interested in why people like telling and being told stories, which brings us to a piece of research recently published by two US academics, John Donahue and Melanie Green.
A good story offers a great deal of evidence to suggest that, the better people are at telling stories, the more popular and more highly thought-of they will be by society in general and by potential partners in particular – hence the paper’s almost Daily Mail-like secondary title ‘Men’s storytelling ability affects their attractiveness and perceived status’.
Thus, for example, the paper highlights one study that “suggested positive styles of humour were more valued in long-term relationships, perhaps because they indicated warmth”. If you are short of jokes, you are welcome to borrow a favourite from the world of value – Q: How many efficient market theorists does it take to change a light bulb? A: None – the market has already discounted the change.
No? OK, moving swiftly on, the paper also touches on more evolution-oriented theories. So, for example, effective storytellers (and indeed singers) may have enjoyed “a mate selection advantage” in the past or storytelling may be analogous to the peacock’s tail – that is to say, people want an attractive partner and a good line in chat suggests intelligence and an ability to build positive relationships.
Then, as tends to happen with academic papers, the authors set up some experiments – here testing the degree to which storytelling ability matters when people are sizing up a potential romantic partner. They showed men and women photographs of members of the opposite sex, who had been objectively assessed as being of average attractiveness, and labelled some as good storytellers and some as bad.
Asked to rate how much this mattered in the context of the person in the photo being a ‘casual date’, a ‘long-term date’, ‘physically attractive’ or a ‘friend’, a key finding of the experiment was: “Storytelling ability did not affect attractiveness judgements for both men and women but rather appeared to play a role only for women judging men’s attractiveness for long-term relationships.”
Something known as “sexual strategies theory” suggests “women can be attracted to men who provide resources over an extended period of time”, says the paper, which goes on to speculate “this potential for provision of resources might explain why women prefer good story-tellers as long-term partners (or, alternatively, why they avoid poor storytellers as long-term partners)”.
The paper’s conclusion – that “stories are not just mere conversation but can have important social and relationship consequences” – leads us to make two points, here on The Value Perspective. The first is that it would certainly help explain why investors so often feel more inclined to give greater weight to stories than concepts, even if such an approach can lead them to make poor decisions.
And the second? That it is only as investors we avoid stories – not least because, as we argued in End of story, offering a set narrative in an investment case only highlights one possible version of the future when of course there are so many others that could each play out instead. Otherwise, we love telling stories. Jokes too. Speaking of which, why did the momentum investor cross the road?