How Stories Influence Investment Questions

When we look at trends, there are underlying narratives that keep recurring and we need to consider them.

-  Amy Power Jansen

Humans are meaning-making creatures. We see patterns where there are none; create inferences where there are only associations and distil intent where there is only coincidence. Making meaning is why we have both religion and science: two different fruits of the same tree. A tree we managed to climb down from to create the complex and interconnected world we live in today.

Investing and finance areas built on myth as any other part of human life. Money is a myth. We choose to exchange goods and services for pieces of paper, and these days, bits and bytes moving from my account to yours. Money has no intrinsic value beyond what we assigned it. That doesn’t make it any less useful. It makes our complex lives possible, and it is underpinned by a state who only accepts legal tender in exchange for our annual tax obligations. But at its heart, it is still a myth we have all agreed to believe in because it makes our lives easier.

How is this relevant to retail investing? Because when we look at these trends, there are underlying stories that keep recurring. Let’s start with a benign example, like exchange-traded funds and the broader rise of passive investing.