For the journalists out of work at Rupert Murdoch’s News International, for the authors who will be selling fewer books with the bankruptcy of Borders Books, here is an idea for turning your storytelling talents into real money.
You see, most of what you learned in business school or read in best-selling business books has absolutely no impact on a company’s value, at least over the short-term (less than five years). Your company shrinks and your stock price rises, or vice versa. You never know. It is like an old German saying that when a rooster crows on the full moon, the next day it will rain… or it will not rain. The two have nothing to do with each other.
This means that unless you are patient and confident enough to play for the very long term (at least 10 years), what you do to raise productivity, improve marketing or optimize your sales force does nothing more than keep you in the game. “Mr. Market,” as Warren Buffett calls it, just does not care about your profitability or revenue growth. “Mr. Market” cares about the story.
If you want to make real money with stories, walk over to Wall Street, where stories REALLY matter.
A good friend of mine makes hundreds of millions of dollars for his clients playing on the stories investors tell. He runs a specialized trading team for a leading global bank that is skilled at predicting which way a company’s story is going and setting up a set of trades to monetize the emerging new narrative.
A few weeks ago, in a bar in Greenwich, CT, surrounded by traders and bankers celebrating or drowning the week with beer, I got a chance to learn how he does it. I can’t share the specific details, but here are three takeaways I pulled from our conversation that could help you make money from understanding, and shaping, the stories investors tell.
Look for the fork in the road: Last week Borders Books faced a fork in the road: it would either file for bankruptcy and shut down its stores, or it would find a “white knight” investor to save it. The entire shape of the publishing industry would be changed depending on which path Borders followed. During times of great uncertainty, when a company faces two radically different outcomes, stock price volatility soars. Stock values blow up or down depending on the capricious wind of rumor and even small pieces of information can have a major impact on a company’s value.
Look for forks in the road. They offer opportunities for big shifts in value.
Look for information where others are not. Don’t seek information others cannot get. Not only is that difficult, it may also be illegal. Instead, look for information where others are not. My friend, for example, might call a company to ask questions for which he does not actually want an answer. He asks about what the board will be discussing or a clause in the bi-laws with the real goal of finding out whether a particular board committee meeting was moved back by a couple of days. This seemingly innocuous information can mean millions of dollars. It implies the big announcement the market is waiting for will not be coming for two more days. A good trader can make money from knowing this.
Find a narrative analogy. When writers pitch a story for a movie, they usually use an analogy: “This is like Star Wars meets Pocahontas.” The way human beings are designed to predict what will happen is through analogy: this reminds me of something that happened in the past, so what if things unfold the same way? This was clear in my early blog on the Google IPO. Experts discounted Google’s potential because they believed Google was going to relive the Netscape story.
Just as writers often follow certain narrative plots, proven story structures–like “boy meets girl, they break up, they look for each other, finally find each other and are together again,”–and fill them in with unique characters and events, companies do the same. They must fit an existing story already in investors’ minds.
To make real money with storytelling, consider strolling over to Wall Street. If you are an investor looking to make money from predicting and playing on the stories the market tells, or whether you are looking to maximize your firm’s value by shaping the narrative investors tell about you, consider three tips:
1. Look for (or create) a fork in the road. What is the prevailing story investors are telling themselves? How can you shift that storyline into a new frame that implies a new future? Remember how investors wavered back and forth on the future of Borders this week.
2. Look for or place data in unexpected places. Where are investors looking for data to inform their narrative? Where are they not looking? What data could you look for, or plant, that will start reshaping what people believe?
3. Find a narrative analogy. Are investors saying something like “ABC company is like XYZ company was … “? What future does this narrative analogy imply? What alternative analogy would you like to introduce that will lead investors to expecting the future you want?