Chapter 10

Narrative

“Narrative becomes the way you make sense of chaos. That’s how you focus the world.”

—Dennis Lehane

Every once in a while as a writer, you get pulled into writing a brief chapter—something so short and quick you question whether it should be included. This was that chapter. The pull of narrative on investing and the lack of discussion about narrative in investment literature made it irresistible for me to quickly scratch the surface of this topic.

Narrative is what average investors latch onto, whether they are aware of it or not. Let’s take a look at Apple’s narrative from a “simpleton” investor perspective:

“Apple is a company that is constantly innovating great electronic products I use every day. Steve Jobs was groundbreaking with his creativity and company culture cultivation—ultimately creating a company that deeply values its shareholders.”

This simple narrative inspires. Apple’s products give customers the ability to connect, engage, and create within the digital community. Simplicity is king with investment narrative. Apple is a prime example of reputation and quality influencing narrative.

Imagine yourself for a brief moment as a millennial who orders coffee from Starbucks every single day on the way to work. During lunch, after a load of stressful meetings, you pick up a steamy Starbucks coffee to forget the woes of employment. On the drive home you down hot coffee from a Starbucks-themed thermo cup. In your millennial mind, what better investment could you put your capital into than a company like Starbucks, which you use every day?

To you, Starbucks has friendly employees, quick service, and a product you can’t live without.

That, my friends, is narrative. It is a snapshot of what we perceive the company to be. Even if narrative is truthful, narrative is never the full picture. Yet the power of expectations—and by extension, narrative—is a catalyst for measurable action. From an economic theory standpoint, you cannot ignore the impact of narrative because it directly impacts investment decisions.

“We relate to and remember stories better than we do numbers.”

—Aswath Damodaran

Every cryptocurrency has a narrative, for better or for worse. Narrative is powerful. It moves money. The simpler the narrative, the more investors and users feel they can use or relate to the investment vehicle.

What is Bitcoin’s narrative? From a simple investor’s perspective, it is as follows.

“Bitcoin is the first truly digital currency that is globally accepted by any electronic device attached to the internet. Bitcoin is a digital asset that is limited in supply and fills a niche role similar to that of rare metals. It is a twenty-first century product made possible by cryptography and mathematics—maintained by thousands of computers.”

Bitcoin has a more complex and less “tangible” narrative than Starbucks or Apple for the average person. Despite this contrast, Bitcoin has a far simpler and compelling narrative than the majority of other cryptocurrencies.

I’ve randomly selected the 114th-largest cryptocurrency using a two-hundred-sided digital die to compare to Bitcoin’s narrative, once again using a narrative that appears common surrounding this cryptocurrency.

“Golem is a global, open source blockchain project that enables decentralized sharing of computer power in order to solve complex computations for an individual entity. These complex computations can involve CGI rendering, machine learning, or scientific computing. It is made up of the power of users’ machines that are integrated into the network. This creates a decentralized sharing economy of computing power that anyone can access.”

While Golem appears to have some intriguing utility, from a narrative perspective the story feels complex and undefined. Golem as a blockchain project appears to be for a small audience with extremely specific use cases. The utility sounds highly ambiguous—“decentralized sharing of computing power.”

This is borderline wizardry for the layman investor looking for a simple narrative, even if it is an excellent investment separate from narrative.

How many people are actually going to use Golem? Could I picture using this product or service daily? Ask those same questions about Apple, Starbucks, and Bitcoin, and you can easily answer with, “Yes, yes, and somewhat maybe.” But with Golem, from a simple narrative angle, the project is convoluted enough so as to not encourage the same enthusiasm as a cup of Starbucks might.

Finding a simple narrative in the blockchain space might be the most important investment analysis, assuming the other qualitative pieces fall into place. Humans are drawn to stories—find the stories the greatest number of people can understand, use, and be inspired by. That is where the greatest growth will be.

Because whether we like it or not, we invest in compelling stories.