Manu Guptha

“The most powerful person in the world is the storyteller.” Or “In the circus of finance, the greatest clowns are those, who can spin the most enchanting tales, leading the parade of fools right off the cliff.”

This quote by the late Steve Jobs couldn’t be more exploited by the media and a few fund managers—all to the peril of gullible first-time investors, especially those born during the COVID era.

The “tale” of Asian Paints — I first realised its God-like status when I saw a 30-minute segment on a TV channel that showcased its wealth creation over the preceding decade. What stayed with me was someone in the show confidently stating, “Asian Paints will pulverize its competition”  because of its pricing power and brand loyalty.

The narrative around the brand’s strength and impregnability was so strong that Michael Porter himself might have reconsidered his Five Forces; four of them seemed terribly threatened by Asian Paints’ dominance.

But here lies the inconvenient truth: no brand, however mighty, can escape the ironclad principles of investing:

“Over a reasonable period, either the price of a security will catch up with superior performance, or inferior performance will catch up with a fair price. But everything must remain a function of real profit and cash generation over a sustainable period.”

Consider paints in India: an overplayed narrative of ‘unshakeable moat’ by its over zealous lovers,  pushed two conglomerates to enter the space that was reigned by Asian Paints, triggering hyper-competition that eroded profit margins for all. In fact, someone got pulverized. But it wasn’t the competition, it was the retail investor that succumbed to the easy narrative.

A decade of outperformance by Asian paints got withered away in just a quarter, because of market forces.

It’s human nature to cling to stories. We can even say, we humans crave for narratives. Critical thinking is exhausting, and seductive narratives around anything new and shiny — Bitcoin, AI, NVIDIA, chip manufacturing, or the resurgence of India’s PSUs provide comfort. These stories aren’t new; two decades ago, the same zeal surrounded the DotCom stories and Cisco. Cisco is still 30% short of its 2000 high.

And Asian Paints’ investors too succumbed to that seductive story of it staying the reigning king in the market. But Q3 (October) showed that when competition rose, Asian Paints’ margins suffered. The rest is history.

Here are the SEVEN curses called upon themselves by the ‘Euphoric Global Investors’ :

1. Lusting the story and ignoring the performance

In 2021, the narrative surrounding Indian PSU banks underwent a sudden transformation. They were no longer the symbols of inefficiency or non-performing assets (NPAs); they were the “phoenixes rising from the ashes.”

Fund managers proclaimed a turnaround story, with claims of digitization, improved governance, and a focus on profitability.

But let’s look at the reality: although there is evidently some progress, these banks remain burdened by legacy issues and cyclical risks. A rally fuelled by narratives alone can only last so long before investors realize that actual return on equity (RoE) and consistent performance — not lofty promises — determine long-term value.

Imagine, Indian Overseas Bank trading at valuations that would put JP Morgan, Citibank, HDFC, and ICICI – to shame. What happens to its shareholders when the tide turns, doesn’t require a genius to decipher.

But the investors need to remember that this is the same bank that wrote off tens of thousands of crores of bad loans in the eight-year period of FY 2012-13 to FY 2019-20.
The recovery against these write-offs? Just 17%.

Lesson: A good story around securities with negligible floating stock can make them soar temporarily, but without consistent performance, the reversion to long-term mean is inevitable.

2. The Fallacy of “Enjoy While the Party Lasts” Narrative

The IPO frenzy since 2021 is in full swing. Nykaa, MamaEarth, Zomato, Paytm, and a host of other startups debuted with sky-high valuations, and everyone from retail to institutional investors joined the celebration. Some fund managers managing dividend yield funds happily invested in these loss-making companies.

“Markets are on fire! Enjoy the rally while it lasts,” screamed television anchors, enticing unsuspecting investors to jump into overheated sectors.

But those who held on too long learned a painful truth: when the concert ends, the rush to the exits creates a stampede. Paytm, once the poster child of India’s fintech revolution, saw its valuation crumble as markets recalibrated their expectations to match the reality. If paper profits aren’t converted to real profits while the party is on – the narrative – ‘enjoy while it lasts’ is meaningless.

Lesson: Leave the party while you’re still able to stand on your own. No rally lasts forever, and greed is a poor dance partner.

3. The Potential of Circa 2047

Nothing matters in the short term, and in the long term, we’re all dead. But throw out a grand number so far and so large into the future, that you’re suddenly a visionary — this is what I call ‘Disease 2047’.

Our politicians do it. Our CEOs do it, and it shifts the necessary and immediate burden of performance onto the grandeur of vision.

And Excel spreadsheets become willing accomplices in this fraud and deception.

Isn’t this why Nykaa, Paytm, Honasa, Zomato—or even Tesla, Peloton, Zoom, and Nvidia — seem so promising?

When the darlings of India’s e-commerce and cosmetics launched their IPOs, their sale projections implied that every Indian was about to start using a lipstick.

Media buzzed with tales of a ‘D2C revolution’ by these ‘pioneers’ and fund managers couldn’t stop extolling their first-mover advantage.

But strip away the layers of stories and marketing gloss and you discover the inconvenient truth of slowing growth, margin pressures, piling inventories, and accounting jugglery — like EBITDA morphing into ‘adjusted EBITDA’ — that obscures the absence of sustainable cash flows.

Globally – investors, enchanted by narratives of exponential growth of their favorite companies are choosing to ignore the inconvenient truth. Growth and Story – no matter how promising is cyclical.

Talking about 2047 is easy; all advocates of that ‘golden future’ will be long gone before they can be held accountable.

The truth is simple: Great companies discount present cash into future valuations; vanishing companies discount imaginary future cash into present valuations.

Lesson: Don’t let the promise of a future overshadow the present. A great story backed by weak fundamentals is just lipstick on a pig.

4. The Blessing and The Curse of Being an Ostrich

Ignoring risks is easy and oddly satisfying. Society often frowns upon people who are skeptical and rational, preferring the ‘bold’ ones. “The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts – Bertrand Russel“

Obviously, all successful people — Jobs included — are part eccentric, part reckless: traits that contributed to their triumphs. Jobs, for instance, was a genius but quite obnoxious towards his teams.

However, most new-age entrepreneurs and fund managers have conveniently assumed that the inverse is also true. They assume obnoxiousness, recklessness, and even stupidity signal ‘outlier genius’ — and that, in most cases, is suicidal.

Take Jet Airways in 2017. It was THE market darling, hailed for its “resilient business model” and “strong promoter vision.” Retail investors clung to their shares, ignoring signs of impending disaster like mounting debt and rising competition. The story was too compelling to abandon.

By the time the house of cards crumbled in 2019, it was too late for most investors to ‘leave-the-party’. The lesson was stark: turning a blind eye to obvious red flags doesn’t shield you; it only delays the inevitable reckoning.

Today, hundreds of companies are surviving on little more than management commentary, dubious order books, and future prospects. Yet, first-time DIY investors and fund managers with less than a decade in the field, are buying into unsustainable narratives.

Lesson: Not knowing when a Tsunami might strike is fine – Only God knows. Not being cognizant that a Tsunami can ever strike is abject stupidity. Ignoring reality doesn’t change it. When red flags appear, face them and act decisively. 

5. Promoters Focused on Stock Prices, Not Performance

During the peak of the pandemic, GMM Pfaudler made headlines for its meteoric ‘price’ rise. The company’s promoter repeatedly assured investors of his commitment to long-term growth. Tarak Patel even appeared on CNBC assuring everyone how undervalued his stock was and commanded a much higher valuation. Yet, in an unexpected twist, the promoters offloaded a significant portion of their holdings in September 2020, raising serious questions about their intent. NOW it is obviously trading at its fair valuation and its price has eventually caught up with the performance and management intent.

Ever since Rajiv Bajaj started focusing on his stock price more than the performance of his company since late 2022, when he professed Rs.12000 and later Rs.20000 in Oct 24 to be the fair price, the stock has languished.

These two instances underscore something vital: Promoters trying to talk up the share prices of their companies can only go that far. Promoters and CEO’s have just one simple responsibility. Grow the company, allocate capital wisely, keep expenses low (operational leverage), and distribute excess cash to shareholders.

Promoters and Executives who focus on their stock prices more than the company’s performance will get their shareholders in trouble sooner or later.

Lesson: Trust those, and only those promoters, who focus on building businesses, not stock prices.

6. Valuations and Cash Flows Matter—That’s All

In the late 2000s, Suzlon Energy was hailed as the poster child of India’s renewable energy revolution. It promised to lead the global market with its wind energy solutions. The story was captivating — a home-grown company poised to redefine the energy landscape and pave the way for a sustainable future.

But behind the grand vision lurked a sobering reality. Suzlon’s rapid expansion came at the cost of unsustainable debt, exacerbated by poor cash flow management. Its ambitious global acquisitions, strained resources and exposed operational inefficiencies. Investors, enamored by the narrative, overlooked these red flags until it was too late. When the bubble burst, Suzlon’s stock valuation plummeted, leaving a trail of destruction and disillusionment.

On the other hand, Mahindra & Mahindra, continues to thrive despite economic shifts and market disruptions. Instead of chasing flashy narratives, M&M focused on fundamentals — steady cash flow, new product launches, robust cost management, wise capital allocation and consistent returns to shareholders. Today, its product portfolio remains resilient, even during challenging times, proving the power of sustainable business practices.

That’s what happened to Suzlon’s investors who ignored these fundamentals; they paid a heavy price as the stock’s valuation collapsed. It’s still down 85% from its peak.

Lesson: Compelling stories can inflate valuations temporarily, but only consistent cash flows can keep the balloon from popping.

7. Construing Good Luck as Your Strategy

Remember the meme stock frenzy of 2021? ITI, MTNL, and a host of other forgotten names suddenly became market darlings as liquidity flowed freely, and retail investors chased the “next big thing.” For a brief moment, even the most mediocre stocks looked like winners. Retail investors poured in, convinced they were riding the wave of a hidden gem.

This wave of exuberance that swept across global markets was fuelled by social media hype and retail investors armed with trading apps like Robinhood and Zerodha. Forums and chat groups pushed their narratives to retail investors eager for quick gains. ITI and MTNL, legacy companies that were struggling to stay relevant in a highly competitive telecom and tech landscape, saw their stock prices soar.

This wasn’t a strategy — it was a bubble of sheer luck born of excess liquidity and herd mentality that ignored the basic principles of stock picking. This bubble continues to inflate at a global scale – to date.

Bitcoin has great uses and could be a stack for a lot of future technologies and perhaps a store of value, but Saylor’s leverage over leverage over leverage of the MSTR stock, which is now seeming like a Ponzi scheme will destroy the wealth of so many when this begins to unravel.

I was rather surprised to see a ‘Buttholecoin‘ that shot up some 22000% in a matter of a few days and ‘Fartcoin‘ a similar 6000% – When Buttholes and Farts start trading on exchanges – it doesn’t take a genius to decipher that the music stopped long ago, party is already over and the trail of destruction would be devastating.

The disconnect between narratives and reality is becoming glaringly obvious as central banks begin loosening monetary policies while inflation is still running amok. Liquidity returning back to the system is like trying to put out fire with a gasoline hose.

Eventually these new age “blue chips” of the sudden frenzy period will return to their rightful place in obscurity, leaving behind a trail of burned investors who bought into the hype without questioning the substance.

Lesson: Don’t construe your good luck with investment misdecisions, to be your strategy. Focus on fundamentals, or you’ll find yourself swimming naked when the tide turns.

Conclusion

India’s story is real, and the next few decades will undoubtedly witness the rise of companies that transform the economy. But amidst this growth lies the risk of Stockholm Syndrome: Becoming a prisoner of compelling but ultimately hollow narratives.

Invest wisely:

1. Look beyond the stories and into the balance sheets.
2. Question everything, especially when everyone else seems convinced.
3. Don’t hesitate to leave some money on the table – but convert paper profits to real tangible cash-in-the-bank. Any unharvested crop eventually rots away – sooner or later.
4. And lastly remember that the only thing truly sustainable in one’s investments is the value derived from real profits and cash flows – not adjusted EBIDTA.

The future belongs to the discerning investor. Don’t let the noise drown out the fundamentals.

Follow me on twitter https://x.com/manurishiguptha

Do Read: The Unraveling of the American Dream: 10 Fatal Flaws