What if I told you the principle of time value of money was first discovered over 2,500 years ago?
And the person who discovered it was neither an economist nor a mathematician.
He was a storyteller called Aesop.
In my profession, one of the most effective ways to communicate is to tell a story.
When someone begins with “let me tell you a story,” I'm usually hooked - most people are.
Why is this? Biology gives us part of the answer.
Our brains have evolved in a way that remembering a story is far easier than remembering isolated bits of information. This is how those with exceptional memories work - by taking random pieces of information and forming them into a story.
Literature gives the other part of the answer.
According to literature, stories have always held a special place in human hearts. As one of the most powerful and emotional forms of communication, storytelling has been an integral part of human culture for thousands of years, even predating the advent of writing. From our earliest days, we've listened to tales shared by our elders and passed them down to future generations.
The best communicators are master storytellers. This is why Charlie Munger often quotes from Aesop’s fables.
I'm of course not really sure whether Aesop invented the concept of time value of money. But I'm reminded of it when I think of the fable "A bird in hand is worth two in the bush".
In simple terms – £100 (bird) received today (in hand) is worth more than £100 received tomorrow (in bush). Sounds a pretty good explanation to me. Sometimes, old fables and stories are as relevant today as they were in ancient times.
Here's an example.
A famished fox crept into a vineyard where ripe, luscious grapes were draped high upon arbors in a most tempting display. In his effort to win a juicy prize, the fox jumped and sprang many times but failed to reach the bunch of grapes in spite of all his attempts. When he finally had to admit defeat, he retreated reluctantly and to console himself, muttered – “Well, what does it matter anyway? The grapes are sour!”
Human beings are good at rationalising the things that they can’t understand or accept. This Mental Model is called Cognitive Dissonance.
Nobel Laureate and popular physicist Richard Feynman once said –
"Above all, never fool yourself, and remember that you are the easiest person to fool."
Charlie Munger warns –
"Recognize reality even when you don’t like it – especially when you don’t like it."
Do you hold any false beliefs or assumptions? Perhaps your overconfidence is hurting your investment experience...
All mental models help improve your thinking.
The quest for wisdom is a never-ending journey.
As Sherlock Holmes said –
"I confess that I have been as blind as a mole, but it is better to learn wisdom late than never to learn it at all."
A great book on why some stories and ideas stick and some don't, is Made to Stick, by Chip and Dan Heath.
It examines advertising campaigns, urban myths and compelling stories to determine the six traits that make ideas stick in our brains.
Storytelling should be an essential part of in your mental model toolbox.
