We humans appear to have evolved to be ‘wired for story’. Neuroimaging has shown that a good story can prompt the release of chemicals, including oxytocin and cortisol. After all, narratives are what allowed our ancestors to learn from experiences that were not their own – a prerequisite for civilisation. Stories are how we attempt to make sense of a complex and chaotic world.
We see this clearly in investing. Isn’t the all-powerful ‘market sentiment’ nothing more than the collective sum of the stories that investors believe about the state of the markets?
Other examples easily come to mind. Why is Tesla’s market cap more than double that of Toyota’s and over 12 times greater than Ford’s ? Why is Bitcoin worth almost a trillion dollars today – over a hundred times more than it was just five years ago? Why did investors give multi-billion-dollar valuations to zero-revenue companies during the dot-com bubble?
Of course, fundamentals matter. But narratives matter just as much – if not more so. Portfolio managers frequently use narratives to explain performance, but that is just the start. From a marketing perspective, more can be done to use stories to attract investors, grow assets under management, and differentiate themselves from the competition.
Here are three rules for successful storytelling in investment communications.
Rule #1: Be sure the plot is clear
There is no story without a plot. In an investment marketing context, the plot is the core narrative that leads the reader toward an inescapable conclusion – that your particular investment product is the one that can help them achieve their specific goals. You need to be clear about what that narrative is.
Let’s use the hypothetical example of a marketing piece for an actively managed emerging market equities fund. For this, the basic plot could be as follows:
- Emerging market equities have historically outperformed developed market equities over the long term
- Plus, because of home-country bias, you (the reader) are probably under-allocated to this lucrative asset class
- However, because emerging markets are generally less efficient than developed ones, there are still many companies that are not being fairly valued by the market
- Therefore, the best course of action is to go with an active fund that can accomplish the due diligence needed to identify these undervalued companies
- Our fund can do that because of our experienced portfolio managers and ‘on the ground’ research teams that actively go out and interview companies’ management
This may seem simple – and it is. Essentially, it is just placing a product’s salient selling points into a logical narrative structure that the reader can follow to the desired conclusion. The nitty-gritty details can come later.
Why is it so important? Because the prospect must be able to justify to themselves why they ended up investing in the fund. The narrative is what lets them do so. Skipping this step can lead to a tangled thread that ends up with a perplexed – and thoroughly unconvinced – reader.
Rule #2: Stay lean – cut out all unnecessary information
Everything in a good narrative should be there on a strict need-to-know basis. In other words, if the reader doesn’t need to know it – don’t include it. When fleshing out the high-level narrative, you should ruthlessly edit out things that don’t serve to advance or support the plot.
Let’s go back to the above example. When expanding out on that five-step plot, a writer may be tempted to include things like:
- The detailed economic pictures of the specific emerging markets in question
- The functions of the three committees an investment recommendation must pass through before it gets added to the portfolio
Of course, judgement calls apply here. There are some things that could indeed add to the narrative – for instance, how emerging market equities have a low correlation with other asset classes and thus also provide diversification benefits. But when in doubt, less is probably more.
Rule #3: Don’t confuse facts and figures with the narrative itself
As the saying goes – facts tell, stories sell. Facts and figures in isolation are boring. And in an age where competition for our attention is at all-time highs, boring things tend not to go unread.
Yet, facts and figures are undeniably important for one vital reason – credibility. Their job is to help answer the natural objections that arise (whether consciously or subconsciously) as the reader moves through a piece. Going back to the above example, some questions would be:
- Have emerging market equities really outperformed developed market stocks?
- Why shouldn’t I just invest in a cheaper index fund instead?
- Can this fund really identify these undervalued opportunities?
The key here is looking at where these objections would naturally arise in the copy, then placing the facts and figures there to address them. Ideally, you would address a reader’s objections before they even arise. The last thing you want is for a reader to move on to the next plot point with an unanswered question in the back of their mind.
A note on ethics and choosing your storytellers wisely
A narrative can be extremely convincing and seemingly factual without being true. And in the investment world, there will likely always be a gap between what is regulatorily permissible – and what is ethical. Storytelling is powerful, and we have a collective responsibility to use it for good.
Still, there is no denying that it is also a strong competitive advantage in today’s ‘attention economy’. This means choosing your storytellers wisely is crucial. At Copylab, we specialise in helping asset managers craft narratives that can both persuade and inform. Go here to learn more about how we can help you.