My local cinema recently held a special screening of Rashomon, the acclaimed period drama from Japanese director Akira Kurosawa.
If you missed it first time around – very probable, given Rashomon debuted in 1950 – then the plot is simple enough.
A samurai is found dead in the forest. Only a few pieces of evidence remain. As various witnesses tell the police what happened, each paints a different picture of events – invariably one putting themselves in the best light.
Some stories change, too, revealing their narrators to be liars, or at least self-interested.
The acting is great and the cinematography is striking for its time.
But it’s the psychological aspect of offering multiple perspectives on the same event that captures the imagination – and that inspired later movies such as Quentin Tarantino’s Reservoir Dogs.
Why am I talking about this?
Well, I believe 90 minutes spent watching Rashomon with a box of popcorn won’t just buff up your cineaste credentials. Seeing the world through a mindset trained by Akira Kurosawa’s movie can improve your skills as an investor, too.
That’s because there are similarly many ways to look at any potential investment.
Two sides to every story
Most of us start off as pretty naive investors. We think investing is easier than it is.
For example, perhaps we read about Warren Buffett and value investing, and then we screen for lowly-rated shares. We crow about being greedy when others are fearful, and we load up on beaten-up companies.
That can work, of course. But the chances are that many of the shares we buy will continue to go south. It turns out the market wasn’t as dumb as our superficial reading of value investing implied. Lots of companies are cheap for good reason.
There really was another side to the story.
More recently, most new investors probably got started as growth or technology investors, thanks to the long tech boom that ended with the bubbly post-pandemic boom for profitless ‘disruptive’ start-ups.
With these ‘blue sky’ shares, the story always sounds exciting and the potential unlimited – while a share graph flying up and to the right makes them easy to buy.
But if you did dabble in this end of the market in 2021, then pretty much every stock you bought is probably deeply underwater by now.
In some cases, the prices were unreasonably frothy – too high to justify almost any realistic growth rate.
In many others, sky-high growth moderated once the lockdown conditions of the pandemic abated, anyway.
And so again there were at least a couple of lenses through which you might have viewed these companies, to try to distinguish the rare winners from the also-rans.
When the plot twists
I’m not making a case here for either value or growth investing – or for any of the permutations in-between.
I’m just saying that understanding the other side to both philosophies – shares can be justifiably cheap, and even great growth stories can be too expensive – is a good first step towards seeing a potential investment from multiple angles.
Ideally, you want to be able to tell several competing stories about a company before you pick the one that resonates most with you.
But at the very least you should be able to give a strong bear argument for any investment that you’re bullish about.
Remember: whenever you buy a share that you’re keen on, someone must be selling it to you.
What do they see that you don’t?
Sometimes it may just come down to different investing styles or time horizons.
But often you hear opposing – and contradictory – stories, and you must choose.
For instance, until recently AIM-listed WANdisco (LSE: WAND) was enticing a lot of growth investors thanks to a string of big-ticket contract wins announcements.
It appeared the company was finally achieving breakthrough success with large telecoms suppliers and other large customers.
But trading in WANdisco shares was suspended this month after management revealed it had uncovered “potentially fraudulent irregularities” of significant size to lead to “material uncertainty” over WANdisco’s future as a going concern.
In other words, the same orders that were attracting so much buzz just a few weeks ago might turn out to have been more or less fictitious!
That is a plot reversal worthy of Rashomon’s alternative narratives.
Or consider shares in banks.
As interest rates have risen over the past year, banks were tipped as rare beneficiaries, thanks to the subsequent margin-boosting improvement in the rates they lent money out at versus what they paid depositors in interest.
This story was compelling – right up until we started to see bank runs at some very sizeable US lenders, due to fears about the damage those same interest rate rises have had on the value of assets on many banks’ balance sheets. Oops!
We might yet see something similar with UK banks, if the rise in mortgage rates since 2021 sparks a house price crash, causing banks to take big writedowns.
Again – two contrasting perspectives on the same story.
Hunting for happily ever after
Rashomon ends with the two main characters finding a baby behind a wall. The first is chastised by the other, who assumes he’s about to rob the child. But really, he plans to take the baby home to be cared with his other children.
It’s an ambiguous conclusion even for the movie – let alone for an investing piece looking for parallels for stock pickers.
Perhaps we can see it as a reminder that all human stories begin with a clean slate? And similarly, that you always come to a new stock without preconceptions?
In contrast, the downside of seeing every side of the argument about a share you know well is decision paralysis.
When the bull and bear arguments look equally reasonable, it’s pretty much a coin flip to choose between them.
No matter! There’s no law that says you have to decide when it comes to any particular share. If it’s too close to call, then maybe the opportunity is not for you. Put it in Warren Buffett’s ‘too hard’ pile. Then, move on until you find a company whose story you can really believe in enough to put your money behind.
