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My local cinema recently held a special screening Rashomonacclaimed period drama from Japanese director Akira Kurosawa.
If you missed the first time – very likely, given Rashomon debuted in 1950 – then the plot was quite simple.
A samurai is found dead in the forest. Only a few pieces of evidence remain. As various witnesses told the police what happened, each paints a different picture of the event – invariably one puts himself in the best light.
Some stories also change, revealing the narrator to be a liar, or at least selfish.
The acting is good and the cinematography is excellent for its time.
But the psychological aspect offers a different perspective on the same event that captures the imagination – and that inspired later films such as Quentin Tarantino. Reservoir dogs.
Why am I talking about this?
Yes, I’m sure I waited 90 minutes to watch it Rashomon with a popcorn box will not only make your cineaste credentials. Seeing the world through the mindset trained by Akira Kurosawa’s films can also improve your skills as an investor.
This is because there are many different ways to look at potential investments.
Two sides to every story
Most of us start out as naive investors. We think investing is simpler than that.
For example, perhaps we read about Warren Buffett and value investing, and then we list stocks that are underrated. We are crows about being greedy when others are afraid, and we charge the beaten company.
That works, of course. But it’s likely that many of the stocks we bought will continue to go south. Turns out the market isn’t as dumb as you read about light value investing. Many companies are cheap for good reason.
There is really another side to the story.
More recently, most new investors may have started out as growth or technology investors, as the long tech boom that ended with the post-pandemic boom was exciting for unprofitable ‘disruption’ startups.
With these ‘blue sky’ shares, the story is always exciting and the potential is endless – while the stock chart flying up and to the right makes it easy to buy.
But if you do it at the end of the market in 2021, then all the shares you bought may be underwater right now.
In some cases, prices were unreasonably frothy – too high to justify almost any real growth rate.
In many others, sky-high growth has moderated once the pandemic lockdown has eased.
And again there are at least a couple of lenses through which you may have viewed this company, to try to distinguish rare winners from well-rans.
When the plot twists
I’m not making a case here for either Value or growth investing – or for any permutation in between.
I’m just saying that understanding the other side to both philosophies – Sharing is possible fairly cheap, and even a great growth story is possible very expensive – is a good first step to look at potential investments from different angles.
Ideally, you want to be able to tell several competing stories about the company before you choose the one that suits you best.
But you should at least be able to make a strong bear argument for any investment you believe in.
Remember: every time you buy a stock you like, there is always someone selling it.
What do they see that you don’t?
Sometimes there may be different investment styles or time horizons.
But often you hear opposing – and contradictory – stories and you have to choose.
For example, until recently AIM-registered WANdisco (LSE: WAND) has attracted investors’ attention as it has announced many big-ticket contract wins.
It appears that the company has finally achieved breakthrough success with large telecom suppliers and other large customers.
But trading in WANdisco Shares has been suspended this month after management revealed it had been discovered “Irregularities of potential fraud” of significant size to lead to “material uncertainty” about the future of WANdisco is a concern.
In other words, the same order that attracted attention a few weeks ago may be fictitious!
This is a well-deserved plot reversal Rashomon’s alternative narrative.
Or consider shares in a bank.
As interest rates have risen over the past year, banks are considered rare beneficiaries, thanks to the improvement in the next margin-boost in the rates they lend money in versus what they pay depositors in interest.
This story is interesting – until we start to see banks running on some very large US lenders, due to worries about the same damage that rising interest rates can do to the value of assets on the balance sheets of many banks. Alas!
We may see the same with UK banks, if the rise in mortgage rates from 2021 causes a house price crash, causing banks to take huge writedowns.
Again – two contrasting perspectives on the same story.
Hunting for happily ever after
Rashomon ends with the two main characters finding the baby behind the wall. The first was tortured by the other, who thought he was going to rob the boy. But indeed, they had plans to bring the baby home to be cared for with their other children.
It’s a far-fetched conclusion even for the film itself — let alone for an investment piece that seeks parallels for stock pickers.
Perhaps we can see it as a reminder that all human stories begin with a clean slate? And the same, who always come to a new stock without preconceptions?
In contrast, the weakness of seeing every side of an argument about a stock you know is decision paralysis.
While the arguments of bulls and bears seem equally reasonable, it is pretty much a coin flip to choose between them.
It doesn’t matter! There is no law that says you have to decide on a certain part. If it’s too close to call, maybe the opportunity isn’t for you. Put it in Warren Buffett’s ‘very hard’ pile. Then, keep going until you find a company whose story you trust enough to put money into.
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