Coco the Goat and the Power of a Story

Ask AI (artificial intelligence) about Coco the Goat, and this is one result: “Coco the Goat is a beloved pet who recently made headlines due to a dramatic evacuation during a wildfire in Malibu. When the flames approached Roya Lavasani’s home, she and her family had to evacuate quickly, taking Coco with them. Coco has become a symbol of resilience and companionship during challenging times.”

 

 

You’re probably thinking it must be a slow month if we are focusing on goats, but stay with me on this one—I think Coco’s story holds a valuable lesson about investing.

 

 

A few weeks ago, I was supposed to attend a meeting in Santa Monica as the LA fires were making headlines. I watched a local news channel to determine if the meeting would likely be canceled, and I must admit the sheer devastation was hard not to watch. As the fire raged on, the one thing the media does well is cover personal stories. One that emerged was about Coco the Goat.

 

 

As more and more people lost their homes from the LA fires, many started gathering at shelters. One evening a news crew captured Coco lying on a cushion in the parking lot next to her owner, a young woman in her twenties. She began telling the story of how Coco had been left at an animal shelter but wouldn’t eat or drink. The shelter had called to have the girl come pick up Coco, so now the goat and girl were sleeping in her car. The girl describes the goat as being emotionally upset, and with a life expectancy of only another year, the goat was under stress because it could not live at home for what was likely the rest of the goat’s life. It soon becomes apparent this girl seems to think the goat is a real person.

 

 

The owner explained their predicament: the family has two houses in the hills of Malibu, but they can’t go there because they are both rented out; hence they are now sleeping in their car. Coco’s owner did an amazing job painting the picture of how the fire had impacted not only her but also the goat. The girl then mentioned that she had set up a GoFundMe page to try and raise some money to support Coco. Interestingly, another local station picked up the story, but this time the owner left out the Malibu properties from the story. Apparently, the owner decided it is easier to raise money for a goat if you leave out the investment properties in Malibu. After several days Coco’s ability to raise money was impressive.

 

 

You are probably wondering how Coco’s unfortunate circumstances tie into investing. The answer lies in the power of storytelling. Every investment has a story attached to it whether you realize it or not. Understanding how much value is being attached to that story—and whether it’s justified—is critical for long-term investment success.

 

 

Consider the following categories of investment stories:

 

1. “Blue Sky” Stories: The narrative is all about unproven potential. This is where a company isn’t profitable or has entered a new market and the worth of the company becomes almost totally dependent on how well the story is told. AI is a great example of this. The potential cash-generating future of AI appears to be almost unlimited, so investors get to pick any value they want since there is no real evidence yet of market size, competition, or even all the uses that AI will ultimately address. Unfortunately, management teams usually never err on the conservative side, they suggest the future is always extremely bright.

 

2. Cash Flow Generators: Once a company becomes profitable and generates cash flow, the story shifts to place more emphasis on valuing the cash flow. There is less room for grandiose stories and more room for a concrete story of sustainability. Value is still uncertain, but investors can now decide how much they are willing to pay for current and expected future cash flows.

 

3. Undervalued Assets: Here the story is built around companies whose assets appear undervalued by the market. The investor feels the assets are worth more than the market is currently paying. Catalysts that can affect change in value may be new management better utilizing the asset, or the asset being sold for more than the market was previously anticipating. For these undervalued stories, a critical question is: Why do you think the market is wrong?

 

 

Coco the Goat’s story is an excellent example of how a story can be crafted to create results beyond what most people would associate with a pet goat. Losing a home is never positive for anyone, but the power of storytelling has allowed Coco to raise over $20,000. You can decide for yourself if a goat from Malibu should have a story that compelling. We have all known or even experienced an investment that had a very compelling story but later proved to be worthless. If you are reading this, you are probably more interested in cash flow stories, since that is the core of what we do. The story does matter, so choose wisely.

Observations on the Market No. 403