The Pitfalls of a Great Storyline

No one can resist a good story. In the financial sector, it becomes dangerous when expert status and the art of storytelling go hand in hand. It pays to listen carefully.

I hope you find my Gutmann Viewpoint newsletters to be well-told and informative expose. I like to dress up our investment philosophy in colorful cloths and I am confident that you will always notice my wink and the little escape door in the direction of “I could be wrong”. 

We financial experts only exist to make the specialists in other fields look good, so say the evil tongues. However, the study of financial markets is not hard science, but in fact, a rather broad field of mostly empirically unreliable statements. If an expert tells us a particularly convincing story, we should become all the more cautious. What is an expert anyway? Is it a person who speaks about a topic without any doubts and full of self-confidence? Probably not. In my experience, the more one knows about something, the less absolutist one's convictions become. After all, with increasing expertise, one recognizes alternative scenarios and the subtle differences that escape superficial observation. 

Prejudice and atonement

None of us is immune to the well-told story. Last year, I bought a stock whose business model was described in glittering colors and with convincing facts by an investor friend. This created a positive preconception that was not invalidated even by my own research. Unfortunately, clouds moved in front of the bright scenarios of a rising share price. I still admire my friend's storytelling ability, because the responsibility for the loss of value lay solely with me. Just the quality of the story and the lack of nuance should have been a warning to me. 

A proven testing tool is critical thinking. I should have asked him, or at least myself:

1.    What must be true for the thesis to occur in this way?
2.    What is the counter thesis (“short thesis”)?

The corresponding answers usually change the perspective and pour cooling water over the hot buy recommendation.

Gutmann's equity team is not easily seduced, because it follows clear principles in its analysis that requires knowledge and experience. There are no quick fixes. The best remedy for the good story that then turns out not to be so at all: clear guidelines.

By the way, our experts have no problem answering with an honest “I don't know”. Because that is the true sign of those who attain wisdom through study and experience.