28 Sep Would you buy the Fake Banana?
Imagine coming across this fake banana for sale on ebay. Would you buy it at all? How much would you be willing to pay for it?
What about this windsurfing statue? Is it something you would eagerly put into your shopping cart?
‘Significant Objects’ is an anthropological experiment devised by Rob Walker and Joshua Glenn. They went out to a thrift store and bought a bunch of useless unwanted objects for very low prices. These objects include bottles, mugs, figurines, napkin rings, crockery, cutlery, basically anything that is of almost no value whatsoever. Read more about the objects they bought on significantobjects.com
They had wanted to see how much these items would fetch on online auction site ebay. But rather than simply putting them up for sale, they enlisted the help of creative writers and artists. Each writer is assigned to an object and tasked to create a short story. The story is then published together with the object for sale.
Fake Banana got a comic strip of its own
And here is the story created for the windsurfing statue.
Found at the base of a street lamp near Madison Square Park, beneath a rain-bleached photocopy with a picture of the same object, in black and white halftones but recognizable. Beneath the picture it said IF Found PLEASE RETURN. The bottom edge of the poster was ragged where all the small strips with phone numbers had been torn away, and the strip of tape holding it to the pole was peeling up from the corners.
The first phase of the experiment ran from July to November 2009. A total of $128.74 was spent on purchasing thrift store junk. Every single item was auctioned off on ebay and the total received was $3612.51.
Fake banana was purchased for 25 cents and sold for $76 while Windsurfing Statue went for $31, 10 times over the original purchase price of $3.
We make sense of the world through stories.
The hypothesis of the experiment was ‘Narrative transforms insignificant objects into significant ones’.
As human beings trying to make sense of the complex world around us, we find meaning in stories and narratives. Stories from the past make the study of history come alive. Stories about other people allow us to relate and empathize with them. Inspirational stories spur us on and make us want to achieve more.
Stories are indispensable. Life would be a void without stories and narratives. Stories make our lives significant. Yet, like Walker and Glenn have shown, stories also have the tendency to increase an object’s significance beyond what it is worth. Many times beyond in fact.
Would you buy Stock A?
As investors we are bombarded by stories all the time. Consider a stock. Let’s call it Stock A. Stock A has a Price to Earnings ratio of 40. Price to Book ratio of 22. Debt to Equity of 100%. Based on that information alone, is Stock A significant to you? Would you even give it a second glance? Would you even buy it?
What if I tell you a story about the stock. What if I tell you Stock A operates the following businesses.
- Taobao Marketplace: China’s online shopping marketplace, which happens to be China’s most popular mobile commerce app according to Alibaba
- TMall: China’s largest brands and retail platform that features goods sold directly from brands
- Alibaba.com: a global wholesale marketplace online for international customers
- 1688.com: leading online wholesale marketplace for domestic Chinese small businesses
- Alipay: the PayPal-like service processed $623 billion of digital payments in fiscal year 2014;
- Aliyun: cloud services and infrastructure.
What if the story goes that Stock A is owned by the richest man in China right now? What if everyone is saying that Stock A has tremendous potential for growth on the back of China’s huge and largely untapped population? How about if we hear that the share price has gone up more than 40% since its IPO a week ago?
What if you now know that Stock A is none other than the largest IPO in the world the Alibaba Group? Would hearing these stores affect the significance you attach to the stock? Would you have seen it in a different light on the back of these stories?
Stories make stocks significant
People are willing to pay over and above what an inanimate object is worth because of narratives and stories.
In the investing universe, investors often clamor over themselves to pay beyond fair value of a stock. They do it because of stories and narratives about the stock. When the story unravels they often end up asking themselves – Why did I even buy that stock for?
Do you have that experience?