1,001 Nights Of Stock Market Stories
There is an old Wall Street chestnut that goes, ‘It’s not a stock market; it’s a market of stocks.’ Fair enough, but we’ll take a different approach today to complete this aphorism: ‘It is a market of stories.’ Yes, it is stories that vie for our attention, define our realities, and spur us to action. Recent academic work on the subject reveals that the right narrative – ideally one with a strong human element – physically changes how we process information and make us more likely to empathize with and ultimately believe the stories we hear. Too fluffy a concept for you? The research we cite was partially funded by the U. S. Department of Defense’s Advanced Research Projects Agency (DARPA), and when they have an interest in something, rest assured it has a very serious purpose. As for applications in the world of investing, recognizing powerful stories earlier than the pack is pretty much the job description for analysts and portfolio managers alike. Just be aware that it is all too easy to fall for one as well.
As a child, my parents would tell me stories out of the ‘1,001 Nights’, a collection of Middle Eastern tales that (in Western form, anyway) include Aladdin’s Lamp, Ali Baba and the Forty Thieves, and Sinbad the Sailor. Only in adulthood did I read the actual translations, which makes HBO’s Game of Thrones look like a 1950s ‘Archie’ comic book. Even the framing of the stories is pretty nasty. At the beginning of the first book we read about a king who, betrayed by his first wife, now chooses a young woman from his kingdom to wed every night. And then early the next morning he has them killed. ‘It’s not you, it’s me, but follow the man with the ax anyway’…
This goes on until the Vizier’s own daughter, Scheherazade, decides to put an end to the serial killing of the country’s maidens. She marries the king, but on their wedding night asks that her sister might visit for a few hours before the executioner comes at daybreak. The sister asks for a story, and Scheherazade obliges. The climax of the tale comes just as the sun rises, and by this point the King is so involved in the story that he grants Scheherazade a second day of life just to hear its conclusion. The next night she starts a new story, and the same thing happens at daybreak. Fast forward 1,001 nights of stories (2 years) and the King has fallen love with Scheherazade and they live happily ever after.
If you think this is just old-time storytelling with no place in a modern ‘Rational’ society, consider that the U. S. Department of Defense funds research on how humans process stories through its Defense Advanced Research Projects Agency (DARPA). These are the same folks that brought you highly advanced drone technology, cutting edge night vision systems, micro-sized GPS for people and munitions, and, well, the Internet (original name: ARPANET).
This post was published at Zero Hedge on 11/04/2014.