Have you ever wondered why a banana that costs 26 cents in a supermarket might sell for an eye-popping 7-figure sum at a high-end auction house like Sotheby’s?
Or how a meme coin called “Fartcoin” (something that sounds like it started as a prank) can gain actual buyers in the crypto market? These scenarios might seem bizarre, but they perfectly illustrate the power of narratives in shaping value.
Yuval Noah Harari, in his work Nexus, explores how much of human reality relies on shared stories or 'subjective realities'. Although we rely on an objective reality to survive (gravity keeps our feet on the ground, after all), many of our social constructs—money, brands, and status symbols—rest on collective agreement.
In other words, if enough people decide that a banana taped to a wall is ‘art’, it may indeed be worth a fortune.
Stories as market catalysts
The phenomenon extends far beyond quirky auction sales or peculiar cryptos. Consider the real estate market in Australia, where a modest home in Sydney’s Bondi can sell for a price comparable to a palatial residence in the south of France.
If we put these two properties side by side, ignoring location, it seems ludicrous that a Bondi cottage could match the cost of a sprawling estate on French soil. Yet, the Bondi story — “Australian properties always go up” featuring sun, surf, and a globally recognised lifestyle — adds intangible value that’s difficult to replicate. Buyers not only purchase a house; they invest in an idea and the bragging rights that come with it.
Liquidity also turbocharges a narrative-driven market. When there’s plenty of capital available — fuelled by low interest rates, excess cash in the financial system, or government incentives like tax breaks, lending schemes, and grants — it naturally flows to the hottest stories.
Programs such as first home buyers grants or early access to superannuation for housing further amplify this effect by directing capital into specific sectors. The more compelling the tale, the more investors are willing to plough in money and accept lofty prices. This dynamic often results in breathtaking surges in value, particularly in assets marketed with strong emotional hooks.
Lessons from Damodaran: numbers must underpin the story
In Narrative and Numbers: The Value of Stories in Business, Aswath Damodaran (dubbed the 'Dean of Valuation' and professor of finance at NYU Stern Business School) underscores the interplay between a compelling story and the financial data that should ground it.
Businesses often rely on intangible factors like brand perception or visionary leadership to fetch higher valuations than their fundamentals might suggest. However, Damodaran warns that although stories excite investors, there should a marriage of solid financial underpinnings for those valuations to be sustained.
For instance, Damodaran points out how Tesla’s ambitious narrative of an electric-car revolution drove its market cap into the stratosphere during its early years, even when it was unprofitable and trading at eye-watering multiples. Was it all hype? Not entirely, because the story was supported by strong product demand, technological innovation, and a charismatic CEO who embodied the brand’s mission. The turning point came when Tesla’s numbers — revenue, margins, and production capacity — began catching up with the lofty vision, validating the narrative.
Amazon offers a similar example. During the dot-com boom and bust, Amazon was often cited as a poster child for the bubble — an unprofitable company trading at extraordinary valuations. Traditional valuation methods couldn’t fully capture the growth potential that some long-term investors could see in its narrative. Those who understood the story, coupled with the direction of its key metrics, had the foresight to invest for the long haul, as Amazon’s numbers eventually caught up and surpassed its early promise.
Damodaran’s key insight is that, at its best, a business narrative informs specific metrics like growth rates, profit margins, and reinvestment needs. When the stories and numbers diverge (like a company claiming near-infinite growth potential with no proof), it’s time to reassess the valuation and possibly the story itself.
The nexus of stories and liquidity
Stories become especially powerful in the presence of abundant liquidity. When interest rates are low and capital is searching for higher returns, investors flock to the next big narrative. Consider the speculative frenzy around certain crypto tokens: ‘Fartcoin’ or ‘Trump coin’ can acquire real price momentum if social media communities collectively ‘believe’. These tokens might start as jokes, but with enough hype and liquidity, they can temporarily reach surprising valuations.
In the property example, consider the dynamics of Bondi as a magnet for global and local demand. Overseas buyers, immigrants, property investors, and the local populace all compete for an asset that cannot quickly scale its supply. While demand can rise rapidly — with daily immigration or speculative interest — housing supply is constrained by the time and capital required to build. This mismatch drives prices higher. If the same concentrated demand were to shift to, say, southern France, prices there might soar similarly. The allure of a compelling narrative (“live like royalty in Provence!”) combined with strong demand and limited supply creates a powerful cycle. It’s not just the story or the liquidity — it’s the intersection of the two, amplified by a scarcity dynamic, that drives value into overdrive.
Business applications: selling beyond utility
It’s easy to see how these forces shape markets for artwork, real estate, or esoteric cryptos. But the lesson applies just as powerfully to conventional businesses. Two companies might offer nearly identical products — say, two smart phones—but one captures a lion’s share of customers and can charge premium prices because it tells a story of innovation, personalisation, and brand excellence.
Damodaran, in Narrative and Numbers, describes the building blocks of a strong company story: target market, value proposition, competitive advantages, scalability, and sustainability. When a firm weaves these elements into a coherent narrative and pairs them with credible financials, it can create a moat that’s hard for competitors to breach. Meanwhile, a competitor that only highlights its product features without a captivating brand narrative often struggles to differentiate—even if its service is objectively similar.
Grounding your story with numbers
For investors, the key lesson is clear: markets are not purely driven by numbers. Traditional accounting doesn’t capture the behaviour of humans or the auction dynamics of markets. Narratives influence decisions, fuel momentum, and shape perceptions—stories create money.
That doesn’t mean ignoring the numbers; it means understanding how narratives and numbers interact. As an investor, your job is to evaluate not just the tangible assets or financials but also the intangible story that magnifies their value. A compelling narrative can elevate an asset’s worth far beyond its book value, but only if the numbers eventually support the story.
For entrepreneurs, the takeaway is to ground ambitious visions with credible data. Damodaran’s advice applies equally to both sides of the equation: balance creativity and discipline. Entrepreneurs must validate their narrative with market size, cost structures, and risk factors, while investors must challenge assumptions and assess whether the story holds up under scrutiny.
Key insights for investors
- Narrative first, numbers always: Understand the narrative driving an asset’s value. Then evaluate if the numbers support the story or expose its flaws.
- Market conditions matter: Liquidity, investor sentiment, and broader economic trends can amplify a narrative’s power. Recognising the conditions that enable a story to thrive is critical.
- Separation of fact and fiction: Consistency and credibility are the hallmarks of a sustainable story. For instance, a premium brand narrative must align with strong margins and reinvestment rates.
- Challenge and verify: A great story can easily turn into hype. As an investor, regularly question assumptions, test financial projections, and seek critical feedback to avoid wishful thinking.
Final word: numbers alone don’t move markets — narratives do
The utility of an asset matters, but the narrative is the multiplier. As an investor, the goal isn’t just to read financial statements but to decipher the story behind them. Why are people drawn to this company, this asset, or this product? What emotions or beliefs are driving demand?
A banana can be a snack worth cents or a cultural icon worth millions if the world believes in the narrative. Similarly, investments can grow exponentially when the right story meets sound fundamentals. By combining the compelling power of story with the discipline of numbers, investors position themselves to identify not just opportunities but sustainable value. As Damodaran reminds us, the real magic lies in the seamless union of narrative and data.
Leigh Gant is the Founder and CEO at Unio Growth Partners.