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G’day guys, gals and galahs. #37 right here! Covering a bitta narratives driving markets, plus some interesting links of course! Phil Jackson to start:
The most we can hope for is to create the best possible conditions for success, then let go of the outcome. The ride is a lot more fun that way.
Here’s the format of today’s email:
Part 1: Narratives Not Numbers
Part 2: Bonus Quirky Content - Something to Read, Watch, and Listen
Narratives Not Numbers
Storytelling is a more powerful skill than financial analysis because storytelling is proactive and analysis is reactive. Storytelling dominates reality. Analysis submits to it.
Can a good narrative outweigh bad numbers? For sure. So what are the prerequisites for that happening? How do companies craft a good narrative? And why are narratives in markets stronger than ever before?
Those who tell the stories rule the world
The Rising Importance of the Great Art of Storytelling [Link]
Bill Gurley wrote this in 1999, so the topic ain’t exactly new! The below section outlines why storytelling is so important, but LMFAO at toy e-tailers taking the lion’s share:
In today’s unique Internet business environment, the art of storytelling has taken on increasing importance. Because of “network effect” and “increasing return” phenomena, many people believe that first movers (or at least companies that are first to reach a significant scale) will most likely take the lion’s share of an Internet market. So far, in portals, auctions, and book and toy e-tailers, this has proven to be the case. The company that is most likely to move first is most likely the one with the most money, and the company with the most money is the one that has had the proper ability to sell its story to the investment community.
This tweet obviously isn’t from Bill’s article, but raises a similar point:
Story Time [Link]
Can narratives be decentralized? Apparently so.
The best thing for a company or project’s narrative is to have a lot of people with credibility to the target audience tell stories with roughly similar positive themes again and again over a long period of time, with new examples of the same positive themes added in. The more authentic and the less coordinated it all seems, the better.
And in relation to the current NFT boom:
The thing that people scoff at -- these are just stupid jpegs! -- is the same thing that makes them so rife for narrative building. They’re largely empty vessels into which the community of owners and supporters can pour stories that turn into a narrative. Studying what makes certain NFTs valuable is instructive for anyone trying to build a narrative today.
Fair whack. But I’m lukewarm at best to them. I literally feel like the loser at the party. But hey, if people enjoy it and get something out of it, who am I to judge?
The Stonk Market by Kyla Scanlon [Link]
Okay, not quite a narrative, but definitely related. Maybe even brothers. At least stepbrothers. Obligatory, what is a meme? An idea, behaviour, style, or usage that spreads from person to person within a culture. Kyla goes pretty deep here on the parts to the memefication of the market including SPACs, the Tesla effect and Elon Musk, ARK Invest, NFTs, GameStop and retail investors.
The perfect meme storm has been created through a combination of 4 factors:
Market enthusiasm: A function of lack of consumption opportunities during the Pandemic and information access via Reddit forums/Twitter etc
Risk-on sentiment: The “Pandemic YOLO” coupled being stuck at home
Liquidity: As ~40% of stimulus checks headed right to the stock market, it makes sense that excess will create exuberance.
Meme markets: SPACs, NFTs, and GME are all real products that can be traded, and have financial value, but at their core, they are memes.
And what this might mean going forward:
People are increasingly wanting to work for themselves and “be their own boss”, and I think the market memefication is an iteration of that. The idea that the financial industry is the gatekeeper to the ivory tower of money isn’t as accurate as it used to be.
Memefication is a function of information access, and subsequently, the market is fueled by this meme access. This is a broader sociological phenomenon, but meme markets show the growing power of the retail investor, as well as the structural cracks in the current market.
Narratives, reflexivity, and markets [Link]
The Market is a MEME [Link]
Is the market broken based on the Gamestop saga?
It’s working perfectly fine. Actually, this proved for many that the market does work, it’s just not working in the favor of Wall Street[…] I actually find it hilarious watching Cramer the past couple of days losing his mind saying that the fabric of the market is broken. Give me a break. Retail investors have been dumped on by Wall Street 10000000000000x to 1 when it comes to investing in the stock market. Insanely high IPO releases, dark pools, high-frequency trading - you name it. Wall Street is almost undefeated in screwing over the average joe investor. […] It’s about damn time the average joe has a win in the market.
Couple extra thoughts…
Aswath Damodoran, valuation GOAT and a professor at NYU, has this:
While your final valuation may be composed of forecasts of revenue growth, profit margins and reinvestment, it is the story that binds together these numbers that represent the soul of the valuation.
Gotta finish with this from Peter Lynch, as it’s something directly applicable to investing as well:
The notion of the story is an important one. As I've said so many times before, if you don't know the story, you don't know the company.
Conclusion
I’ve said it before, but I don’t want to be on the wrong side of a narrative. I’m aware of the power of the story. I have no problems with it. But I don’t want to be the sucker that bought in on a story and is caught out when the music stops. Sometimes narratives fade, and sometimes they exist long enough to become fact.
I’m happy (ok maybe not happy, but content) with missing out on these big narrative-driven growth stories. For me it’s simple. I just don’t think I could live myself after jumping on the narrative bandwagon and getting burned. Sure I could make a tonne potentially, but that downside would screw me big time I reckon. Emotionally more than monetarily.
Stocks are not pieces of art. They are not fiat money. Cults of personality do not last forever in the stock market. Narratives break. Eventually, everyone figured out that Galileo was right. - Source
Pushing a narrative clearly works — until it doesn’t.
Something to read: How Do Elite CCP Decisions Really Get Made? [Link]
A fascinating look into how the CCP gets things done. It’s a decent length but super interesting. Obviously, with China being so large there’s the problem of implementing successful changes, but they avoid this with small scale pilot programs:
Since we don’t know what the effects of implementing an entirely new system or set of policies are, it is necessary to conduct small-scale experiments to observe their effectiveness and their potential to promote reforms. […]
Since a pilot program will be implemented on a small scale, there is more room for experimentation, and it is easier to compromise on the implementation of the program with those who hold different views. Third, it allows localities to promote reform based on local conditions. With wide disparities in local conditions, some policies may not be suitable for all places, so the pilot programs are promoted in batches and phases.
Something to read: George Soros: Investors in Xi’s China face a rude awakening [Link]
Soros going straight for the throat:
Xi does not understand how markets operate. As a consequence, the sell-off was allowed to go too far. It began to hurt China’s objectives in the world. Recognising this, Chinese financial authorities have gone out of their way to reassure foreign investors and markets have responded with a powerful rally. But that is a deception. Xi regards all Chinese companies as instruments of a one-party state. Investors buying into the rally are facing a rude awakening. That includes not only those investors who are conscious of what they are doing, but also a much larger number of people who have exposure via pension funds and other retirement savings.
and this bit below is the prime reason I don’t get involved directly with Chinese companies, too many ways the rug can get pulled from underneath you.
SEC chair Gary Gensler has repeatedly warned the public of the risks they take by investing in China. But foreign investors who choose to invest in China find it remarkably difficult to recognise these risks. They have seen China confront many difficulties and always come through with flying colours. But Xi’s China is not the China they know. He is putting in place an updated version of Mao Zedong’s party. No investor has any experience of that China because there were no stock markets in Mao’s time. Hence the rude awakening that awaits them.
Something to watch: Gwarosa: Working to Death in South Korea | Foreign Correspondent [30 mins]
$180 for a 16 hour day. And that’s before taxes, fuel, and everything else. I’m not gonna sit here and pretend I have all the answers. Hell, I barely have any answers. But this shit is rough as guts.
I’ll kick the bucket myself at this rate
Something to watch: Taiwan Revealed: Innovation Island [60 mins]
Taiwan has launched a new English-language news and media streaming platform that’s worth checking out. Taiwan+ posting content focused on news, as well as features about Taiwan, from food and tourism to culture and technology.
Something to listen to: Longriver 1H21 Letter - Interview [Apple Link] [Link]
I actually have an interview with Graham (@longriver_hk) coming out on the 9th of September, so if you listen to this you may not listen to my one! But seriously, Graham is an amazing bloke and his podcast deserves a listen.
Rabbit hole/resource to dive into: Understanding Korea Series [Link]
This is just next level. There’s so many great PDF’s here on random things you might want to learn about Korea. I’m talking Hangeul, Early Printing in Korea, Korean Confucianism, Seoul, A Cultural History of the Korean House, Korea’s Religious Places. I love resources like this!!!
Bonus investing links that don’t fit anywhere else:
Singapore Banks by Daniel Tabbush [Link]
"Bankers often refer to new loans, done within 18-24 months as being unseasoned. These are loans that are not ‘tried and tested’ in a downturn. The change in lending to Greater China over the past two years may be just as important as the level of outstanding exposure. UOB ranks best, where 21% of its marginal credit volume from 1H19 to 1H21 was into the Greater China region. The figure was 36% for DBS, and 53% for OCBC."What It Takes To “MOOC” It In Southeast Asia Edtech: A Survey Of Unicorn Comparables [Link]
"Southeast Asia is a market ripe for MOOC adoption, for two reasons: (1) conventional education costs are high but consumer spending in education ranges from 5-7%, much higher than Western countries like the US and just on par with China and India, and (2) more than 60% of the combined populations of Indonesia, Philippines, Vietnam, and Thailand are of working age — a segment that MOOCs will often target"EdTech in Indonesia [Link]
A great overview of the education space in Indonesia.No cults, no politics, no ghouls: how China censors the video game world [Link]
Will game devs self censor to appease China? “So if this is the soundbite you want, I will say, it will definitely happen. But the context that you frame that within is that this would happen with any market that was this large. Any opportunity that any producer has to make a ton of money by releasing their media within a certain market, they are definitely going to try their best to localise that content for that market.”
Nothing more from me this week, so I’ll see ya when I see ya, have a good one!
- K
You can find previous issues of Curated by Kalani here. I’m on the web at kscarrott.com, interviewing at Compounding Curiosity, and on Twitter @scarrottkalani.
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