Table Of ContentNARRATIVE
AND
NUMBERS
THE VALUE OF
STORIES IN BUSINESS
ASWATH DAMODARAN
NARRATIVE AND NUMBERS
Columbia University Press
Publishers Since 1893
New York Chichester, West Sussex
cup.columbia.edu
Copyright © 2017 Aswath Damodaran
All rights reserved
ISBN 978-0-231-18048-1 (cloth : alk. paper)
ISBN 978-0-231-54274-6 (e-book)
Cataloging-in-Publication Data is on file at the Library of Congress.
Columbia University Press books are printed on permanent
and durable acid-free paper.
Printed in the United States of America
Cover design: Diane Luger
Cover image: © Dollar Photo Club/Jalees & Smith
contents
Preface vii
1
A Tale of Two Tribes 1
2
Tell Me a Story 10
3
The Elements of Storytelling 24
4
The Power of Numbers 36
5
Number-Crunching Tools 52
6
Building a Narrative 70
7
Test-Driving a Narrative 92
8
From Narratives to Numbers 110
9
Numbers to Value 128
vi CONTENTS
10
Improving and Modifying Your Narrative—
The Feedback Loop 151
11
Narrative Alterations—The Real World Intrudes 167
12
News and Narratives 184
13
Go Big—The Macro Story 205
14
The Corporate Life Cycle 227
15
The Managerial Challenge 247
16
The Endgame 263
Notes 267
Index 271
preface
As early as middle school, the world divides us into storytellers and num-
ber crunchers, and once divided, we stay in our preferred habitats. The
numbers people seek out numbers classes in school, go on to numbers dis-
ciplines in college (engineering, physical sciences, accounting), and over
time lose their capacity for storytelling. The storytellers populate the social
science classes in school and then burnish their skills by becoming history,
literature, philosophy, and psychology majors. Each group learns to both
fear and be suspicious of the other, and by the time they come into my
valuation class as MBA students, that suspicion has deepened into a divide
that seems unbridgeable. You have two tribes, each one speaking its own
language and each convinced that it has a monopoly on the truth and that
the other side is the one that is wrong.
I must confess that I am more a numbers person than a storyteller
and that when I first started teaching valuation, I catered almost entirely
to those of my ilk. As I have wrestled with valuation questions, one of the
most important lessons I have learned is that a valuation that is not backed
up by a story is both soulless and untrustworthy and that we remember
stories better than spreadsheets. While it did not come naturally to me,
I started to animate my valuations with stories, and I have rediscovered the
storytelling side that I had suppressed since sixth grade. While I am still
viii PREFACE
instinctively a left-brainer, I have in a sense rediscovered my right brain.
It is this experience of tying stories to numbers (or vice versa) that I have
tried to bring into this book.
On a personal note, this is my first book written in the first-person
singular. While you might find the repeated use of “I” and “my” off-putting
and perhaps an indication of an outsized ego, I realized as I was writing
about my valuations of individual companies that the stories that I was
telling about those companies were my stories, reflecting not only what I
thought about them and their managers but also my reading of the land-
scape. Thus, I will describe my attempts to tell stories about Alibaba in 2013,
Amazon and Uber in 2014, and Ferrari in 2015, and to convert these stories
into valuations. Rather than use the royal “we” and force you, as readers, to
adopt my stories, I felt it would be much more honest (and more fun) to let
you pick apart my stories and disagree with them. In fact, you can put this
book to best use by taking my story about a company, say Uber, thinking
about what parts of my story you disagree with, coming up with your story,
and then valuing that company based on your story. A related peril of lay-
ing bare my narratives on real companies is that the real world will deliver
surprises that will make each of my narratives wrong, sometimes horren-
dously so, over time. Rather than be scared of that prospect, I welcome it,
since it will allow me to revisit my stories and improve and enrich them.
I will try to wear many hats in this book. I will, of course, spend a great
deal of time looking at companies as an investor from the outside and valu-
ing them, since that is the role that I most frequently play. I will sometimes
play the role of an entrepreneur or founder trying to convince investors,
customers, and potential employees of the viability and value of a new busi-
ness. Since I have not founded or built any multibillion-dollar companies,
you may not find me convincing, but there is perhaps something of value
that I can offer. In the last few chapters, I will even look at the connection
between storytelling and number crunching through the eyes of top man-
agers of publicly traded companies, with the admission again that I have
not been a CEO of a company in my lifetime.
If I accomplish my objectives, a number cruncher reading this book
should be able to use my template to build a narrative to back his or her
valuation of a company and a storyteller should just as easily be able to
take a story, no matter how creative, and convert it into numbers. More
generally, I hope that the book becomes a bridge between the two tribes
(storytellers and number crunchers), giving them a common language and
making them both better at what they do.
NARRATIVE AND NUMBERS
