Devina Mehra said the art of storytelling can turn into an investment pitfall even for veteran investors. She noted that stories often ignore complex market realities. While fund managers use stories to convince people, the market does not care. Only 17 stocks showed profit growth every year for a decade.
Stories are also the best way to pass on knowledge, wisdom and information to kids and adults. Anthropologists say stories have existed in all cultures across all time periods, regardless of their level of sophistication. In a very real sense, stories are what make us human.
One, stories work when there is a human being listening. They are powerful. Memorable. Satisfying. A fund manager can easily convince an investor with this nice little story: “I am investing in this company because it has outstanding brands, predictable cash flows, manages logistics very well and its growth prospects are virtually unlimited…” But when you’re investing, there is no human being on the other side. There’s only the market, which doesn’t really care about how beautifully your story is crafted or how many people believe it.
Two, stories almost never play out the way they are initially presented. Most of you will be able to recall instances when a story that was told to you about the market or some stock did not unfold the way ‘everyone’ or investment ‘experts’ said it would.
Almost every story of a stock or company that is talked about or a valuation that has been done assumes that the company will grow its earnings into infinity. Yet, of the 4,000-plus stocks listed on Indian bourses, only 17 have shown some profit growth every year for even a decade. That’s merely 0.4%.
Three, stories have to be deterministic and simple but life is complex and probabilistic. A company has hundreds of financial parameters and there are many decisions that can change its business outcome. Also, it is impacted by the economy, its competitors, consumer behaviour, government policy, etc.
In the interest of a good story, one needs to discard all this complexity and uncertainty and turn it into a very simplified, and therefore inaccurate and under-analysed, narration.
Four, stories cannot accommodate a range of outcomes. Nobody would watch a movie that ends by saying there is a 60% probability that the hero and heroine will get married, a 30% probability that each will get married to someone else, and a 10% probability that they won’t get married at all.
In search of a coherent story, a fund manager or investor often gives her holdings a rosy future without risks, ignoring the discordant elements (industry cycle, favourable policy or plain luck), and that is where investing becomes dangerous and risky.
The fascinating part is that ultimately the story misleads the storyteller as well, because after telling it enough times, we get invested not just in the stock, but in our story about it. Because of that, it becomes virtually impossible to change our mind. And the best among us fall for this.
For a long time, Warren Buffett was selling—in a sense—the Coca-Cola story. That it was a great brand (it was the world’s top brand for decades), had predictable cash flows, a moat around its business, etc.
Like all great stories, none of these factors was incorrect or untrue, but they still did not capture all the changes that were taking place in the company and the industry, including how the consumer was evolving away from sugary sodas and its rival Pepsi was moving faster on a variety of fronts, including by reducing its dependence on sodas.
Buffett’s Coke position did very well for several years after he bought it, but then things changed. However, by then he was arguably so invested in his story that he could not change his mind. He held on to it for far too long.
Coca-Cola’s share price has become four-fold including dividends, from its 1998 high. The corresponding numbers are six times for Pepsi and 11 times for the S&P 500 itself. Ultimately, storytellers also get convinced by their own stories and get derailed.
Getting around this bias is not easy, especially when people tell you that high-conviction investing is the way to go, without your realizing that this is a euphemism for buying into a story.
Test whether your story about a stock, sector or market makes sense, or are you discarding facts that don’t fit in. Even if the story currently makes sense, will it do so forever? Challenge the assumptions and think of alternative endings. Do this and you may be able to avoid the ‘storification bias’ a bit.
Devina Mehra
Devina Mehra is among the most respected names in investing across the world with experience of 30+ years. She set up First Global, India's leading securities and research firm, in the 1990s, and made it the first Asian (ex-Japan) member of the London Stock Exchange and the National Association of Securities Dealers (NASD) over 25 years ago. She now manages funds and portfolios worth a total of $700 million in India and globally. Mehra has been quoted in leading global and Indian publications. She has a gold medal from IIM Ahmedabad and eight gold medals from Lucknow University. She has been a prolific writer in various newspapers and magazines, and writes a regular column for Mint. Her book, “Money Myths and Mantras: The Ultimate Investment Guide”, is a best seller and was nominated for Crossword Book Awards 2025. She has been rated as one of the 50 Most Powerful Indian Women by Fortune, Business Today and Outlook Business magazines. She has been recently appointed by the Pension Fund Regulatory and Development Authority (PFRDA) to an expert committee to undertake a comprehensive review and modernization of the NPS investment guidelines. She often forgets to comb her hair but always finds time to read. She has been calling out sexism since the age of 10.