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Narrative and Numbers: The Value of Stories in Business

4.07  ·  Rating details ·  337 ratings  ·  25 reviews
How can a company that has never turned a profit have a multibillion dollar valuation? Why do some start-ups attract large investments while others do not? Aswath Damodaran, finance professor and experienced investor, argues that the power of story drives corporate value, adding substance to numbers and persuading even cautious investors to take risks. In business, there a ...more
Hardcover, 296 pages
Published January 10th 2017 by Columbia Business School Publishing
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Sanford Chee
May 23, 2017 rated it it was amazing
Talk@Google
https://www.youtube.com/watch?v=uH-ff...

Step 1: Develop a narrative for the business that you're valuing (hypothesis about how the business would develop & evolve over time; start of detective story).

Step 2: Hypothesis testing: Test the narrative to see if it's possible, plausible or probable (Bayesian theorem/base rates). Common sense sanity check.

Step 3: Convert the narrative into drivers of value. Take the narrative apart and look how you'll bring it into valuation inputs starting
...more
Owen Tuleja
Jun 02, 2018 rated it really liked it
I give this book four stars not because it lacked anything it should have had but simply out of my desire to reserve five-star review to those books that have an impact on a wide audience; this book's audience will be limited to people interested in valuing public and private companies, an audience of whom I enthusiastically count myself one.

Damodaran starts by recounting his history as a "numbers' guy". His valuations, he says, were precise to the nth decimal, but he lacked confidence in their
...more
Nero
May 06, 2020 rated it it was amazing
Damodaran was successful at showing how narratives drive value and vice versa. He cited concrete and detailed examples about this process. I liked how he emphasized the need for consistency between the two and the potential impact of a disconnection. My take-away is a framework to easily deconstruct a valuation story and I hope to apply it in the future.
Terry
Dec 10, 2017 rated it it was ok
Shelves: investing
A disappointing book. I follow Prof Damodaran's blog, and this book is pretty much a copy of his blog. Lack of efforts and lack of ideas.

The whole point of the book is that every investment is a story and also valuation. Depending on what narratives, valuation changes. This is very intuitive and not helpful at all. People can be biased to believe in stories but not putting down valuation work, or people can be too rigid in believing in numbers and ignores changing narratives.

The examples in the
...more
InvestingByTheBooks.com
Aug 20, 2018 rated it really liked it
The procedure of valuing a stock through is rather simple once it has been learnt. And when looking in retrospect on why old valuations turn out to be incorrect it is rarely due to getting the mechanics of the valuation tool wrong. Instead it is almost always because the sales or profits turned out very differently from what was forecasted since the company, its strategy or business environment developed in an unanticipated way – the narrative was wrong. This is a book on how to combine the numb ...more
Mbogo J
Jan 14, 2020 rated it liked it
The goal of this book was lofty, it was why I even read it in the first place. It set to combine qualitative and quantitative data to tell the story of how we value a business. The result is too close to call but for me personally, it fell woefully short of what I had hoped it to achieve.

What Aswath called "narratives" turned out to be a few lines of what is the company's core business and what gives it its competetive advantage and these were mostly obvious and self evident that I don't think t
...more
Javier HG
May 14, 2019 rated it really liked it
Si te interesa el análisis de compañías, o simplemente entender por qué unas empresas (de un mismo sector) se valoran más que otras, este es un libro muy recomendable.

Como digo a mis alumn@s, muchas veces se ve la valoración de empresas como una ciencia, en la que "solo" hay que introducir números en un modelo y nos sale un resultado cartesiano. Ojalá fuera tan fácil. Analizar y valorar empresas es un arte en sí mismo, en el que la experiencia es un grado. Y "Narrative and Numbers" habla del "a
...more
Brick&rope
Feb 02, 2019 rated it really liked it
That Aswath Damodaran is a teacher is abundantly clear on every page of this book. That he is (self confessedly) predominantly a numbers guy is also clear. What he does here really well, is bring together how stories about companies, either told by the companies and their insiders themselves, or by potential investors to themselves, are as dominant part of the valuation of a firm as are the core numbers. But stories by themselves are vacuous and often just plan wrong. For those interested in val ...more
Sandesh Rawat
Jan 22, 2020 rated it really liked it
Shelves: to-read-in-2020
If you're looking for a book to guide you on process to become better storyteller in any business-setting? This book probably wouldn't be the right pick. But if you're an investor or a manager or in general curious person about the process of deriving valuation of companies or may be preparing for your interviews in VCs/Value investment firms, this book would definitely be insightful.

For a person like me, who is a rookie (as of Jan 2020) at value investing, this book didn't make the valuation pr
...more
Stephen Rynkiewicz
Professor Damodaran basically holds that narrative and numbers are linked: The founder needs a story to justify his valuation, and the publicist needs numbers to validate her pitch. Quants will enjoy Damodaran's portfolio manager approach, judging from the sharp-pencil references to Tufte and Bayes in the margins of my borrowed copy. Still, communicators who can handle a bit of MBA-level analysis can learn a lot from his observations. A forecast can be imprecise yet accurate (reading this in 202 ...more
Ragnar
May 20, 2019 rated it liked it
It's a good read for number crunchers who do stock analysis, to take their game to the next level by
seeing behind the numbers and building plausible narratives based on numbers that in the end would drive better investment decisions. It really comes handy when trying do evaluate startup companies, that are not backed up yet by the numbers.

Some general takeaways that can be applied in data analysis:

- average is a simple metric but not the best metric, it depends a lot of the values distribution
-
...more
Khaleel
Jul 04, 2017 rated it really liked it
A good book that provides insight on how to incorporate qualitative analysis and the story (narrative) of a company into its valuation. I really enjoy Damodaran's online videos and his approach to valuation. This was an enjoyable book on how to think about valuation as a story and how to put the pieces together. On a negative note I found the tables/exhibits a bit tough to read on kindle. This was a problem because there are a lot of them in the book. Overall recommended for all investors.
Arjun Gupta
Apr 25, 2020 rated it it was amazing
A great guide linking numbers and narratives giving examples of one of the successful companies in the globe today. It intrigued me to get into basics of how corporate cycle works, important aspects that drive the business. Besides, it sheds light on why stories play a significant role in attracting investors.
Harry Vinh
May 29, 2017 rated it it was amazing
This book is gold in term of giving you advices on how to:
- Make your researches more solid.
- Make your arguments more compelling
- And especially, make your valuation more of a captivating story rather than soulless spreadsheets.
Francisco Yabuna
Jul 10, 2020 rated it it was amazing
As an investor,this book really gave me a wide perspective on valuation with over complicating anything,and as a start up CEO the book should be Read by every entrepreneur especially in the idea stage.
Mark Nguyen
Jun 17, 2017 rated it it was amazing
Took me 3 months to read it because it was an actual textbook with lots of insightful material that takes me longer to soak up. Great book and a must recommendation.
Imzen
Aug 31, 2019 rated it it was amazing  ·  review of another edition
All the years of investing and teaching experience is in the book. Narratives and Numbers could be the new Intelligent Investor. Thank you, Mr. Aswath.
Amith Guthi
Jul 30, 2017 rated it really liked it
Why numbers and a story must meet midway for a valuation to be competing
John
May 29, 2017 rated it really liked it  ·  review of another edition
Excellent merger of numbers and stories.

This is a great recap of how words and numbers make a compelling investment thesis. It provides a structure for both types of analysis.
George Atuan
Sep 20, 2018 rated it it was amazing
Interesting approach, i like how he links the story and the number pieces beautifully. Definitely opened my eyes regarding the importance of the story part of an investment.
Dan Albert
Mar 14, 2019 rated it really liked it
Damordaran argues that we need to combine storytelling with number crunching if we are to properly value companies. I'm not a financial analyst or economist, so I had to read some sections more than once, but it's mostly very clearly written.

The most interesting thing he shows is that good value investing requires integrating stories with numbers. Neither is sufficient.
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Aswath Damodaran is a Professor of Finance at the Stern School of Business at New York University (Kerschner Family Chair in Finance Education), where he teaches corporate finance and equity valuation. He is best known as author of several widely used academic and practitioner texts on Valuation, Corporate Finance, and Investment Management.

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The young adult genre continues to lead literature in embracing new voices, championing all types of diversity, and, well, just really app...
62 likes · 32 comments
“I am naturally drawn to numbers but one of the ironies of working with numbers is that the more I work with them, the more skeptical I become about purely number-driven arguments.” 0 likes
“With all of the data and analytical tools at our disposal, you would not expect this, but a substantial proportion of business and investment decisions are still based on the average. I see investors and analysts contending that a stock is cheap because it trades at a PE that is lower than the sector average or that a company has too much debt because its debt ratio is higher than the average for the market. The average is not only a poor central measure on which to focus in distributions that are not symmetric, but it strikes me as a waste to not use the rest of the data.” 0 likes
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