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"Greater Fools", "Story Stocks", And Bernanke "The Hero"
The term “Story stock” used to mean a company with little more than a sheaf of press releases and a glitzy narrative about its future prospects. Now, ConvergEx's Nick Colas notes that pretty much any stock with a fighting chance of outperforming needs to have a “Story” to cut through the clutter of a noisy macro-driven market. Story-less equities where the valuation is cheap simply dawdle, while theoretically expensive story stocks sizzle loudly. So what makes a good story? The answer is not only “Blowin’ in the wind,” it is as old as the hills. CEOs matter intensely – they tell the story, and in the best cases they are the “Hero” at the center of it. Other types of narratives: “New Blood”, “Resurrection”, and “Conan the Barbarian.” And even with all these categories, Colas reminds us that we can’t forget that the U.S. equity market is essentially one large story stock, driven by a “Hero” figure – even if you don’t consider Chairman Bernanke is the same league as Moses or Ironman.
Via ConvergEx's Nick Colas,
At a recent client event, we got to talking about what U.S. equity was the best “Story stock.” It took me a second to catch up to this line of questioning. To me, the term is a derogatory one. A story stock is one with little more than an overactive PR department pumping out press releases. Such companies rarely have actual revenues, and when they do the bookkeeping is sketchy, at best. These types of investments rely heavily on the “Greater fool” theory, hoping that some poor sucker who comes late to the story will take you out of your stock at higher prices.
What our assembled group actually debated was something different: what stock best exemplifies the critical fundamental drivers which investors most value in the current market? Being the old codger at the table, I offered up the three best examples I could remember from the last 20 years on the Street as a template to consider what stock might fit the bill today:
- Chrysler in the early 1990s. Lee Iacocca had resurrected the #3 automaker from near extinction in the early 1980s, but took his eye off the ball as the decade progressed. When the Gulf War I recession came around, Chrysler didn’t even have the cash on hand to finish the development of the Grand Cherokee – a breakthrough product which could save the business. So Iacocca aggressively restructured the company, took his show on the road, issued a ton of stock at $5, and finished the truck. The stock went to $10, then $20, then $30 in just a few years. A cyclical recovery helped, but investors were consistently surprised by how the new – and American - company could develop cars and trucks with huge margins quickly and consistently.
- GE all through the 1990s. The old General Electric was always a strong company, but when Jack Welch took over he brought a new management discipline to an already well-run enterprise. He introduced a ruthless promote-fire process in HR, added Six Sigma analysis to manufacturing (and eventually services), and generally remade the company along cutting edge management practices. Every business had to be #1 or #2, or have a shot at getting there. He fired or sold off over 100,000 employees. Over his time at GE, the stock appreciated just over 4,000%.
- Apple under Steve Jobs, Chapter 2 (1998 2011). Everyone knows this story – Steve is fired by the Apple Board, wanders the wilderness, develops a new product, gets repo’ed back to Apple, designs the iPod, and rewrites the rules for everything from cell phones to movies to digital media. Like the GE case study, the stock appreciates over 4,000%.
If you sense a rhythm to these tales, that’s because they are largely the same. Essentially, they follow a mythology which is as old as storytelling itself. If you are a fan of Joseph Campbell or Carl Jung, you know the pattern. “Heroes” all follow the same path, whether they be from the world of religion (Jesus, Moses, Buddha and Mohammed), mythology (Prometheus, Homer’s Iliad and Odyssey), or even comic books/popular fiction (Tony Stark/Ironman, Harry Potter, any Star Wars movie). The model is simple:
- A seemingly ordinary man is called away from the life he knows to undertake a journey.
- On that journey he encounters magical challenges and is often aided by equally magical helpers along the way.
- After many struggles he eventually triumphs over the forces of evil.
- Eventually he returns to where he started and gives gifts/teachings to humanity.
Iacocca, Welch and Jobs may not seem especially magical, let alone religious, figures. But all of them took a symbolic journey to change their businesses or industries, fought to execute their vision, and eventually returned with a fundamentally changed company and a much, much higher stock price as a gift to their shareholders. Don’t stare too hard at the crass commercialism of the comparison – focus on how the narrative of “Story stocks” looks and feels very much like ones which resonate through history and culture. The pattern is the same.
There are other examples of the common structures of “Story” stocks. A few thoughts here:
- New Blood. Changes in management are the bedrock of many investment stories. Sometimes it is simply “Out with the old, in with the new.” But just as often this transformation comes from a spin-off, where previously subordinated management has the chance to run their own operation as a public company. These can be great situations, since they unleash an entrepreneurial spirit among the newly elevated management team.
- Resurrection. It takes a lot to kill a large public company. Usually, you need a deadly combination of lousy business strategy, a highly leveraged balance sheet, and a cyclical downturn. More often, you get “Zombie” companies, suffering from poor management or a product misstep but with reasonable balance sheets and an economic tailwind at their backs. And among these, a small percentage will shake off their shuffling gait and return to the land of the living. Apple, ironically, was such a company when Steve Jobs wasn’t at the helm.
- Conan the Barbarian. Big and brutish, but also agile and disciplined, “Conan companies” essentially destroy everything in their path. Other names are “Category killer” and “low cost producer.” Think Wal-Mart in the 1980s and 1990s, crushing small town department stores. Or Home Depot and Lowes in the 1990s doing the same to local hardware and building supply stores.
The power of “Story” goes far beyond stock picking, however; our macro policy driven investment scene in the U.S. is actually the most pronounced example of the genre. Fed Chairman Ben Bernanke may be no match for the Buddha or Tony Stark when it comes to heroic status, but his narrative is the same:
- The Financial Crisis forces Bernanke to take a journey, away from standard monetary policy and into a new and unknown world.
- The essence of his journey is to complete successfully what past “Heroes” failed to do: provide enough financial liquidity to stave off a second Great Depression.
- On his journey, he encounters challenges (Greece, Cyprus, Spain, etc) and is aided by like-minded companions (other dovish members of the Fed).
Of course, we don’t know how this particular “Story” will end. We don’t call someone a “Hero” until they finish the cycle and return with their gifts and teachings. But it is clear that, thus far, Chairman Bernanke has hewn to the classical “Hero” story pretty closely. After all, if creating +$2 trillion out of thin air isn’t some powerful magic to fight off the forces of evil, I don’t know what is. And in that light, it becomes easier to see why this market is so fixated with this story to the relative exclusion of all others.
It’s the biggest one in town.
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Terrific spot on post especially your conclusion !
But it is clear that, thus far, Chairman Bernanke has hewn to the classical “Hero” story pretty closely. After all, if creating +$2 trillion out of thin air isn’t some powerful magic to fight off the forces of evil, I don’t know what is.
GREATER FOOLS = BITCOINERS
How I know Bitcoin is going to crash:
First, read the end statement of Canadian Austrian's comment here:
http://www.zerohedge.com/news/2013-04-03/bitcoins-go-parabolic#comment-3...
Quote: "keep in mind that one Bitcoin has the same rarity as 300 ounces of gold."
It's pretty commonly accepted here on ZH that Gold is undervalued, BUT even at the manipulated low price of $1,557/oz. Canadian Austrian just valued the Bitcoin @ $467,100, thereby valuing the BTC market @ $9,809,100,000,000. (when all 21M are mined).
So, this knucklehead just assigned a valuation to Bitcoin that is $2+ Trillion higher than the GDP of China?
$500 Billion higher than all of the fiat paper on deposit at US Banks?
You always know a crash is coming, when a market gets crowded by the clueless.
Everything that goes up must come down BUT
Bitcoin, let's think this out.
A while back I made buckets of money selling used auto parts to Equator. All was dandy until I wanted my money. My bank in Quito told me I had to spend the money I made there in country. That sucked because they had nothing I wanted. Now if it was today I could spend Equator's money in country on Bitcoin. You see unlike tulips Bitcoin has a important purpose. The one thing that Bitcoin is lacking in relationship to all FIAT currency's is flexibility, yes flexibility! Without flexibility a currency will experience deflation upon demand. A country that has its money deflate through demand or GDP increase will just print. It's like free money for the government! This is why FIAT needs an expanding economy to work because the temptation is to great not to print.
Bitcoin is outside all this.
Bitcoin is a tool.
Don't through out the screw driver just because you like the wrench.
I agree that it has some utility for moving money around, for now, but that will change. Assigning a valuation of $9.8 Trillion to "a utility for moving money around that does not have major commercial or consumer support" is just plain stupid.
Agree but what stops that Jap chap from creating Bitcoin II
No more $9.whatever trillion .
Nothing stops anyone from creating a new platform for a similar system, since it's all open-source code.
But wouldn't creating Bitcoin 2.0 essentially be the same thing as currency devaluation? And isn't the "perception of Bitcoin's rarity" the only assignation of value that it has?
It also is a currency without country.
TPTB can't touch that.
Don't get me wrong, I love my shines of silver and gold.
It's a good tool that's all.
hi. i'm mark suckerberg and i approve this ad. and for those of you that don't know, i approve of facebook. and i approve of earnings growth of trillions of dollars every year, for the next 20 years. so please try to think longterm and don't be a loser. invest longterm now. income averaging they call it.
A while back I made buckets of money selling used auto parts to Equator.
For someone who can't spell the name of a country correctly, your belief in Bit C's is suspect.
I've been down at the beach with my Bitcoin detector all week and haven't found ONE!
My friend has been digging for those damn things in his back yard for the past year and only found an old G.I. Joe missing his rifle and an arm.
It's amazing how so many (probably not too stupid) people get carried away with this bitcoin bullshit...
Greatest Fools?
Seen on a Real Estate office in Fort Myers today.
Buy a Condo. Get a $500 prepaid Visa.
The obvious questions are:
Can I use the card to buy the condo?
How much will I have left on the card?
"But it's a great time to buy.....and I could use that card to buy Bitcoins"........
One born every minute, I swear.
yeah, but he could use them Bitcoins to put hisself through law school at Costco.
Really? Are you using the 21M as a milestone? Do you know the 21M is achieved in 2140?
Your rational is equivalent in predicting the weather in NY in 2140 on say .... 21 Dec. BTW, what are the next lottery numbers?
If you are talking about BitCoin you should be much more concerned about the fact that the entire M2 BitCoin in around 600M. That means, given current transaction liquidity, anyone with 1M can actually provide impressive flutuations, like 50% in 48 hours.
BitCoin is an experiment. At current BTC issued only when a BTC comes close to 20,000 USD will start to mature (100B) since manipulating currency at that levels start to be more expensive (yet possible).
Dude, BitCoins don't exist. It's just utter bullshit
And now you are going to tell me that all USD exist in physical curreny (notes and coins and gold). Yeah, right! USD, EUR, CAD, NOK are just a total sum in a database in banks computers. If you think otherwise go to Cyprus and try to get your money out.
This from a guy who has a printer name for an ID...rofl...Ben? Is that you?
@ Ex RPI: I was using his (Canadian Austrian) numbers (relative rarity). I did know that 2140 was the final date for 100% supply. I'm merely pointing out the irrational exhuberance in a market that buys and sells NOTHING.
When speculation reaches the point of being this ridiculous, it's time to find the nearest exit.
As far as a prediction? I predict BTC will reach $2, before it reaches $20,000.
On that we agree. It is like believing that APPL could be valued at 1,000, or for that matter any single mid-year predictions that USD-EUR parity will happen by year's end.
If you ask me, the main problem with BTC is actually the 21M limit. Because human when it comes to money aren't actually rational. Had BTC targeted 2T (tera) than a parity of 1 BTC to 1 USD will probably stick within people minds (don't ask me why, there is no rational). It is far more probable to buy 1 NBTC (new BTC) for 1 USD than 0.01 current BTC.
(it is like the same idea that MS "likes" the 25 range. Whenever the MSFT stock reached the 50 bucks, they did a stock split.)
km4,
shouldn't that have red / Ben, - 2 trillion?
Strangely appropriate that the headline has a picture of Vin Deisel.
I'd rather have him steering the ship at this point.
OT: It's weird how you progress through the Kubler-Ross model. Nothing surprises me anymore. It's like watching a gory movie and then falling asleep in 10 seconds when you hit the rack.
I'm bored with this shit, implode already FFS.
give me the ruby slippers!!!
Jesus, Moses, Buddha, Mohammed, Ponzi.... ya know
My favorite current "story stock" is that Apple can go to $1,000/share without Steve Jobs.
Reminds me of the talk that Ron Johnson and Ellen DeGeneres were going to "fix" JCPenney (versus destroy it).
I can only imagine what Bernanke's gifts and teachings to humanity are going to be. My hope is that they'll involve the codification of breakthrough new federal laws about prosecuting Fed officials.
Ah yaz.
Rather than a lighter shade of pale, clear bright lines for treason.
Bennie will outsource printing to the Chinese. Cheaper money, done dirt cheap. Fluck u, running yankee imperialist dogs !
History only retain the victorous one. And that analysis only can be done at some distance in time. It's too soon to know if QE 1,2,3,4,232132 will be a saver or a wrecker. I believe to be a wrecker. Time will tell. Printing money is easy, building long term value is harder.
Bernanke, I've got 2 words for you: "coin bars"
Bernanke, I've got 2 more words for you: "fort knox"
What's amazing is that it's been engulfed in flames now for a couple of hours and hasn't collapsed at freefall speeds into it's own footprint. Must have some shitty steel over there!
Don't worry, it will collapse in on itself shortly, followed by the building next to it...happens all the time...
Rumor mill says Gerard Depardieu has a unit in the building...expect at least 75% to collapse.
This just in from BBC News 24. The building behind me has collapsed. No hold on a second, it hasn't collapsed yet (can someone check the time on that tele-promter, 20 minutes huh?, ok); Sorry we're losing the connection, eh, sorry, we seem to have lost our satellite link to Chechnya; and in other news....
Of course, we don’t know how this particular “Story” will end.
Maybe you don't, but if you think you can borrow your way to prosperity, go right ahead and hope for the best.
Hollywood A list stars, CEOs and Presidents.
All groomed for their roles, and of course: if they were any different personality wise, then why, they wouldn't be there.
BERNANK is John Law.
The Atlantic making Bernank The Hero.
Time Magazine naming Hitler Man of the Year.
Great blunders in journalism,...... err propaganda
Fred Sheehan has it right, he is the greatest threat to the West since Ghengis Khan.
"It’s the biggest one in town. "
aaaaah...try THE ONLY STORY IN TOWN.
Iacocca was a Ford man and in the early 80's at least America had a debate about bailing out Chrysler and Lee at least had the balls to make his case before the public. These bankster pussies won't come in public long enough for someone to punch them in their cocksucker.
Story? This is a serial. XXXX threatens XXX so Greenspan/Bernanke print money and takes bow, knighthood, whatever. What Jobs, Iaccoca, et al faced was a problem that they DID NOT created. The styory here is that Obomber appointed Bernank to solve a problem he created along with Greenspan but never saw coming.
Here's how it ends. Bernanke goes out as Time's Man of the Century and hands over the reigns to Yellin who is as completely F***** as Erin Callan when she got the Lehman job.
As we all know, Chrysler eventually went under and was bought by Fiat, GE went from $60 to $6 over the ensuing decade and Apple, well, need we say more....
dear khakuda - you get 100%. get infront of that bulldozer now and pick up the pennies, because the end is really near. that's bennie's legacy - 'i gave any of you that believed in me the opportunity to get incredibly rich while i had my hand on the money printing hammer. and if you were too stupid to get it - well that's your problem because it should have been obvious that the real end is coming soon - and this time the junkie corpse ain't getting up.
There’s also the “Look, they’re just like (fill in the blank) when they started” story, as in, “Don’t you think Mark Zuckerberg looks like Bill Gates when he was twenty eight?”.
Unfortunately none of the stories are worth anything unless they’re actually true.
Mr Colas spins a great story. I am of the mind that he is speaking with tongue in jowl.
Of course his previous Story Stocks and subsequent heroes are publicly quoted organizationss with privately hired CEO's.
The Fed is a privately held company wiith a "publicly" appointed Chairman.
The privately hired CEO's produced a product that US consumers were not required to buy.
The publicly appointed Chairman has forced QE on US consumers.
** No extra charge - Mr Colas !
Although I can agree with the sentiment of the article, Jack Welch is nothing more than a fucking theif, and built what should only be remembered as a legacy of crony capitalism and shame.
GE has over one million in debt per employee and pays more in fines for polluting and fraud than it does in taxes.
The programs he installed encouraged fraud, because that is the easiest way to increase "efficiency" and boost the bottom line. So when you work for GE you're faced with a very simple equation - Cheat or get fired.
GE under Jack Welch is a shining example of exactly what is wrong with American business and only a stock momo would believe otherwise.
A more recent example of the difference between the "story" and the company is Google. When are we going to acknowledge that Google's business model is based on click fraud?