Summary of the Key Points
The central argument of this article is that in today's investment and business landscape, the traditional approach of analyzing data to predict the future is no longer effective. Instead, the power of "narrative" has taken its place. Narrative is not just false hype; it is a powerful tool that can drive the allocation of resources (money, talent, time) through collective belief, ultimately turning stories into reality. Examples such as SpaceX's high valuation, Tesla's remarkable turnaround, a16z's media strategy, and a 24-year-old investor who built a billion-dollar fund with a research paper all demonstrate that those who can create or capture a narrative believed by enough people will succeed in the new competitive environment.
Why Traditional Analysis No Longer Works
In the past, the standard investment practice involved using a company's growth data from previous years to predict its performance over the next five years and then applying a valuation multiple to determine its value. This method has been used for decades, but it has completely failed today.
For instance, Figma, a design tool with only $4 million in revenue in 2018, was estimated to earn at most $200 million by 2022 using the outdated rule that growth must decline year by year. However, Figma far exceeded these expectations. Another example is Peter Thiel, a renowned value investor who held shares in Micron Technology for six years but sold them before the AI revolution, missing out on a potential $2 billion profit because he accurately predicted Micron's production capacity and costs but failed to account for the impact of the narrative surrounding the need for memory in AI systems.
The reason traditional analysis fails is that rules are not based on reality. The past trends are often assumed to be inevitable in the future, but the world is changing too rapidly, with new technologies (such as AI and rocket reusability) developing in ways that do not follow old patterns. More importantly, markets no longer rely on data; they believe in stories. Betting on data means losing because the market responds to beliefs.
What is Narrative?
Narrative is not just empty boasting; it is a lever that can turn high valuations into real cash. Many people think narrative investment is about telling a good story and then selling the stock to naive investors. However, true narrative is a self-fulfilling prophecy: when enough people believe in it, high valuations attract cheap capital, which allows companies to expand, and their growth further validates those valuations.
Take Tesla for example. Its initial PE (price-to-earnings ratio) was extremely high, but it was precisely this high valuation that enabled the company to raise funds at low costs and quickly build a charging network and production capacity, leaving its competitors behind. Today, Tesla's high valuation is not seen as an error; rather, it is a tool for shaping the future.
There are also companies that become industry benchmarks without any obvious technological advantages. For instance, people automatically think of OpenAI when discussing AI or Anduril when talking about defense technology. Their competitiveness comes from collective belief, not just from their technology, which can be easily copied by others.
How Experts Use Narrative
Creating and managing narrative has become the core of investment in Silicon Valley. Here are a few examples of how experts have mastered this:
- a16z (Venture Capital Firm): The "Hollywood Agency" of Technology
a16z not only invests but also helps founders create narratives. They have their own media team (videos, podcasts, emails) to connect founders with key stakeholders and industry leaders. They invest in the "signals"—ideas that convince people to pay attention to a company's potential, not just its brand.
- Founders Fund: Building a Network of Influence Through Media
They produced a show called "Mafia" that showcased the power of their network. The show made it clear which investors had access to the best deals and projects, so founders would naturally seek them out during future financings.
- The 24-Year-Old Leopold: Building a Billion-Dollar Fund with a Research Paper
This young investor wrote a paper predicting that AGI (Artificial General Intelligence) would be available by 2027, which went viral in Silicon Valley. He used the paper to launch a fund that attracted investments from Stripe founders and top investors, managing a portfolio worth $20 billion within two years. Although the prediction was not confirmed, enough people believed it, turning it into real capital.
Can a False Narrative Become Real?
The British philosopher Nick Land coined the concept of "super-belief"—a form of fiction that becomes reality when enough people believe in it. Ordinary superstitions are false because they lack sufficient support, but super-belief is different. If enough resources (such as money and time) are invested according to a fictional scenario, it can become reality.
For example, Bitcoin: Satoshi Nakamoto's whitepaper about a decentralized currency convinced many people, who used it to buy, mine, and build exchanges, pushing its market value to trillions. Another example is the AI doomsday theory, which drove billions of dollars in investment into GPU clusters, accelerating the development of AI technology—proving the theory to be somewhat true.
At this point, "truth" becomes irrelevant because verifying it takes time and resources. With limited time, decisions are made based on who is speaking and whom people trust. Nietzsche said, "Truth is a narrative whose origin has been forgotten." With the rapid spread of AI-driven narratives, the concept of truth has lost its meaning.
The New Rules of the Game
In today's investment and business world, it's no longer about determining the true value of a company; rather, it's about which narrative can attract enough intelligence, resources, and attention. You don't need to believe that a story is true; you just need to understand that those with compelling narratives will attract followers and investors. Survival is the priority, not whether the narrative is based on fact.
As Leopold wrote in his paper: "Only you, your friends, and their friends can prevent collapse from happening behind the scenes." By creating a convincing narrative, you can become either a creator or a follower; otherwise, you will be eliminated.