Which Do You Find Sexier In Investing? The Numbers or the Stories?

I recently attended a guest-lecture in Singapore given by Aswath Damodaran, the famed Professor of Finance at the Stern School of Business at New York University. The lecture was part of the programme for the SIM Investment & Networking Club Youth Financial Symposium.

Although I was familiar with the content of Professor Damodaran’s one-day lecture in Singapore (he makes most of his lectures and notes available for free online, so that’s how I’m familiar), I still found the whole experience insightful.

There was one particular point Professor Damodaran made in his lecture which stuck with me. And the point is that there are two camps of people when it comes to investing: The Numbers group, and the Story group. He had previously discussed this topic in detail in one of his blog posts, but I’d like to share some of my thoughts about it too.

Which are you

Due to our personal characteristics or preferences, we might be more comfortable being part of the Numbers camp as we prefer to invest based on logics and facts – and numbers are a great way to represent those.

But, there are also many who feel more comfortable being with the Story group as they prefer to invest by understanding the story behind a company. To them, numbers have limited use as the figures are only able to tell us what has happened – it can’t tell us what’s going to happen.

As an example, Numbers-investors would look at a company like offshore support services provider PACC Offshore Services Holdings Ltd  (SGX: U6C) and see some desirable characteristics like a high annualised dividend yield of 8.8% and a low trailing price to earnings (PE) ratio of 11.

But crucially, the numbers do not show the worsening outlook for the oil and gas sector. The numbers are also not showing the business risks of the company potentially having to face more competition while its customers are cutting capital expenditures.

Meanwhile, investors from the Story group may look at the healthcare sector and think that a healthcare provider like IHH Healthcare Bhd (SGX; Q0F) would be a good investment. That’s because there’s a great narrative behind the healthcare sector: As the world progresses, the population would expand and people would live longer, leading to ever-increasing demand for healthcare services.

But being focused only on the narrative might cause Story-investors to miss out on the fact that IHH Healthcare’s trailing PE ratio of 35 might be a signal that the company’s shares are already fully valued.

Foolish Summary

Investing is a constant learning process. Although we might tend to associate ourselves with one camp more than the other, it is important to realise that we should not be overly-reliant on just one camp.

Often, we have to remind ourselves that an investment would only make sense if both the Numbers and Stories make sense.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim does not own any companies listed above.