Elegant framework for gauging and monitoring investments. By focusing on stock ideas that have a clearly identifiable ‘narrative’ – you provide yourself a convenient due diligence tool. The narrative becomes the straight and narrow that the stock must proceed along. As long as the current situation is consistent with your narrative the stock is appropriate – if it diverges – the narrative needs to be updated or the stock needs to be sold. The Narrative becomes the qualitative manifestation of your ‘path of future intrinsic fair value’.
Simplifies not only the ongoing due diligence, but also client communication. Makes the investment process more scale-able and keeps the analyst from getting bogged down in the necessary weeds of minor details.
A good narrative should be succinct enough to get through in less than a minute. It should capture answers to 1)Key Drivers, 2)Why Now?, and 3)A Kicker or Sweetener. And ideally, it should help the analyst gain comfort in the thesis’ potential appeal – if there is a compelling narrative for the stocks future, it is far more likely to become more broadly understood and be rewarded with a premium valuation.