“Story”, noun, a narrative of incidents or events.
Usage Note: More than simply a tale of history, in High Finance a story can be either backward- or forward- looking and is often used to justify an action taken or that should be taken; an investment, a trade, or a sales pitch looking for a buyer. It becomes a construct used to convince one’s self and others that a decision being made will not result in the loss of money.
Every corner of finance has it’s own story it likes to hear. The amazing thing is, the desired story for any given subculture is so predictably similar, that after a while it doesn’t take much intelligent or creative thought to deliver the story people want to hear. The same six or eight bullet points (surrounded by flatulent big-talk and fancy words) will usually satisfy the requirements of the supposedly discerning audience.
For example, the equity investor likes a “growth story”, something like: selling more widgets for a higher price will generate higher “top line” (i.e. revenue), creating economies of scale which increases fixed cost absorption, which will increase profit margins and earnings per share (EPS) which means the stock is going to go higher.
Likewise, the private equity baron likes a “turnaround story” that weaves a tale of why a particular company has either fallen on hard times, been mismanaged, or somehow missed opportunities to become something bigger and better. The clever PE ace wants to buy that company so he can work his magic to change the direction things are headed in.
The Warren Buffett wannabes like a “value story”. They’ll come up with reasons why a company or a stock is unloved and undervalued. Sure, they’ll throw in some fancy metrics like PE, PEG, and Price-to-Book ratios to make themselves feel better about the story, but in the end it’s just a story: that somehow the asset has the wrong price tag.
Leveraged finance nerds like a “deleveraging story”. They drool at the mouth when they see forward-looking projections that show the Debt-to-EBITDA ratio declining over time. Sadly, many are ignorant to the difference between growing EBITDA and declining debt, when they’re told this story.
Finally, tough-talking distressed investors one-up everyone by taking a noun and turning it into a verb: they love the storied credit. This is a euphemism for a dog doo of a company that’s been in trouble more than once. If a business has been through Chapter 11 bankruptcy two or three times (wittily termed Chapter 22 or Chapter 33), the distressed hedgie will brag about the “due dilly” he’s performing on a “storied” opportunity. His task is perhaps the most difficult of all: To convince other people that he can generate a nice return on such a lousy business, he’s got to weave a tall tale using a value-turnaround-deleveraging-growth story.
The next time a financial genius spins a story for you, reply with the words of one of the best storytellers, the inimitable Dr. Suess:
Please, sir. I don’t like this trick, sir.
My tongue isn’t quick or slick, sir…
My poor mouth can’t say that. No, sir.
My poor mouth is much too slow, sir…
I can’t blab such blibber blubber!
My tongue isn’t make of rubber.
– Mr. Knox, Fox in Socks