narrative and numbers 1장

preface to the indian edition 

- if you have all numbers on your spreadsheet, you don't have valuation, you just have a colleciton of numbers. 

- I knnew how easily I could change the numbers to give me a different value. 

- It has been my mission in my valuation class to try to teach enough number-crunching to the right-brainers to make them disciplined storytellers, and enough storytelling to number-crunchers, to help them trust their imagination. 

 

preface

- I am more a numbers person than a storyteller. 

- one of the most important lessons I have learned is that a valuation that is not backed up by a story is both souless and untrustworthy and we remember stories better than spreadsheets. 

 

1 A tale of two tribes

- For the storytellers, it is easy to wander into fantasyland, where the line between good stories and fairy tales gets crossed. 

- the crisis of 2008 was a cautionary note to those who would let common sense to overwhelmed by complex mathematical models. 

- our decision making has becme even more simplistic and irrational because we have all this data at our disposal. 

- For too many of us, statistics is the forgotten discipline, making us vulnerable to data manipulation. 

- At the same time, you have to recognize both the limits and the dangers of data-driven analysis. 

 

 Valuation as a Bridge

- I call 3P test, starting with the question of whether your story is possible, a minimal test that most stories should meet; moving on to whether it is plausible, a tougher test to overcome; and closing with whether it is probable, the most stringent of the tests. 

-Being told that you are wronng is never easy, but listening to those who disagree with you the most will make your stories stronger and better. 

- I have learned that you cannot value companies prone to change using just equations and models. 

- What connection does this have with stories and numbers? Early in the life cycle, when a business is young, unformed, and has little history, its value is driven primarily by narrative, with wide differences across investors and over time. As a company ages and develops a history, the numbers start to play a bigger rolein value, and the differences across investors and over time start to narrow.