Narrative and Numbers: The Value of Stories in Business (Columbia Business School Publishing)

by Aswath Damodaran

Instead, here are four lessons that I draw from this table: 1. Soaring narratives, soaring values: I know that some people view DCF models as inherently conservative and thus unsuited to valuing young companies with lots of potential. As you can see in table 14.8, if you have a soaring narrative about a huge market, a dominant market share, and hefty profit margins, the model will deliver a value to match. It also stands to reason that when you have big differences in value estimates, it is almost always because you have different narratives for a company, not because you have a disagreement on an input number. 2. Not all narratives are created equal: While I have listed multiple narratives, some of which deliver huge values and some of which do not, not all are equal. Looking to the future as investors, some narratives are more plausible than others and thus have better odds of succeeding. 3. Narratives need reshaping: The narrative for Uber that you develop is based on what you know today. As events unfold, it is critical that you check your narrative against the facts and tweak, change, or even replace the narrative if the facts require those adjustments, which was the point that I made in chapter 11. 4. Narratives matter: Success when investing in young companies comes from getting the narrative right, not the numbers. That may explain why some successful venture capitalists can get away being surprisingly sloppy with their numbers. ...