I started this book with the argument that stories without numbers are just fairy tales and numbers without stories to back them up are exercises in financial modeling. In the intervening chapters, I hope that I have filled in the gap between the storytellers and number crunchers and perhaps offered each side a guide on how to build a bridge to the other side. Along the way, I hope (though I may not always have succeeded) that I kept the conversation going with investors, managers, entrepreneurs, and even interested onlookers.
Storytellers and Number Crunchers
At the very beginning, I made a confession that I was more of a number cruncher at heart and that storytelling was hard for me, at least when I started. The good news that I have for those of you who are number crunchers is not only that it gets easier but that it even gets to be fun. I find myself looking at everything from news stories to duty-free magazines on planes in an entirely new light, as I have discovered how quickly a corporate story can be changed by small revelations.
If you are a storyteller, I know that parts of this book may have been tough sledding for you, and I apologize. I continue to believe that anyone can value companies and that the accounting and mathematical skills you need for valuation are basic. That may reflect my biases, but if you were able to get even a small measure of the steps of getting from stories to numbers in chapters 8, 9, and 10, I will consider my mission accomplished. In fact, I would be delighted if you feel empowered enough to challenge a banker or an analyst on a valuation and confident enough to stand your ground.
Finally, I hope that there will be more forums in the future where storytellers and number crunchers get to interact. I know that each side speaks its own language and is often convinced of its own rightness, but there is much that we can learn from each other, as long as we are willing to listen to those who think differently.
Lessons for Investors
If you are an investor reading this book, you are probably disappointed if you were expecting to find a magic bullet or a formula that will help you find stock market winners. In fact, my message is that rigid rules that claim to find market winners may work in a very small subset of mature businesses but not in the larger marketplace. As I see it, the future of investing belongs to those who are flexible in their thinking and capable of moving easily from one segment of the market to another.
One of the first books that I read on valuation was Ben Graham’s Security Analysis, a bible for many value investors. Unlike some of those investors, I have learned to take what I want from the book and leave the rest behind, because it reflects the time when it was written and the audience for whom it was written. I don’t find much use for Graham’s screens and formulas, but I find great value in his philosophy, which is that your investments should be based on your judgments of the value of a business rather than driven by the perceptions of others or by investor mood. If I apply Graham’s tools to assess growth companies or start-ups, I will always find them wanting, but applying his philosophy allows me to keep the door open to the possibility that they can be good investments.
Through much of this book, I have danced around the difference between value and price, but I think it is a choice as to which you base your decisions on and that you and I have to make that choice sooner rather than later. I believe in value, and I have faith that price will eventually move to value, and my investing reflects that faith. I am willing to buy any business, young or old, if I can get it at a price that is less than value, but I also realize that my faith will not only be tested by the market but that there is no guarantee of rewards for being right on value.
Finally, uncertainty about the future has been part of every story that I have told in this book, and it will continue to be a part of every investing story that I will tell in the future. One by-product of my increased willingness to tell stories is that I have not only become more comfortable with being uncertain but that I am more accepting of disagreement, that is, I recognize that others may have different stories to tell about a company I have valued. Storytelling has also made me more serene about being wrong, especially when my story has a substantial macro component, as was the case with my investment in Vale in 2013 and 2014.
Lessons for Entrepreneurs, Business Owners, and Managers
If you are the founder of a business or a business owner, I hope that the lesson you take away from this book is not that it is all about storytelling. Don’t get me wrong! The story you tell about your business is critical and has to be credible, not only to attract investors, employees, and customers but also for your business to have staying power and succeed. Harking back to chapter 7, and my suggestion that stories be tested on whether they are possible, plausible, or probable, it is important that you not only reality-test your story but that you adjust the story to reflect the shifting facts on the ground. No story is forever and no valuation is timeless!
I also noted the trade-offs for founders in going for soaring stories in which the sky is the limit and more restrained stories in chapter 15. Tempting though it is to go for the former, as you seek out investors and capital, you are also more likely to find yourself stretched for resources and punished for disappointing results. Thus, if your desire is to build a viable business for the long term, choosing the less ambitious story line upfront may be the better option.
Finally, if you are a top manager at a business, it is your job to frame the narrative for that business rather than have it framed for you by investors, equity research analysts, or journalists. That narrative will be more likely to hold up if it aligns with where your business is in the life cycle and if you can deliver results that back it up. Your greatest personal peril is at transition points in the corporate life cycle, where unless you adapt, you will be challenged and perhaps displaced.
Conclusion
I have enjoyed writing this book immensely, and I hope that my joy shows through, at least in some places. If you have enjoyed reading the book, I consider it a success, but I will be even happier if you take a look at the biggest investment in your portfolio tomorrow and not only think about the story that led you to make the investment but convert that story into numbers and value.