Knowing when market research is valid has not been and will never be easy. However, realising that stories are a key component of determining asset prices can help you understand why we continue to see irrational behaviour in various asset markets throughout the world.
A simple thing to remember is that assets are not priced based upon fundamentals, but by what someone else is willing to pay for them. Your uni lecturer probably taught you 'Modern Portfolio Theory'...that the market is priced accurately but in reality emotions of punters cause volatility away from the theoretical.
Conversely if you remind yourself that while earnings growth, dividend yields, and discount rates matter, we ultimately view this info through the prism of our beliefs. We can have the same information, but have very different interpretations on what we read or hear.
A good story can raise someone’s expectations increase their willingness to pay for something. No details change but we heard a better story.
The financial services industry is full of narratives that are sold to clients — past performance, educational background, investment process, differentiation from competitors, expertise, and expected returns. This is why I like to say that a great sales or marketing staff will almost always trump a great investment staff in terms of raising capital from investors. People prefer a good narrative or story to data or analytics.
While we are at it, don't forget markets tend to be volatile because they trade based more on expectations than fundamentals and investor expectations are often at odds with reality.
Shock-horror, much of the financial services industry revolves around expectations management. When investors are forced to deal with an unknown future, expectations management is a key imperative for an asset manager / broker.
The way life works is that many fund managers never get a chance to execute their vision because they can’t explain that vision in a way the client can actually understand it.
The three important attributes required to be successful in the investment industry -
(1) you need an investment process that works
(2) you need to understand human psychology
(3) you need to be able to explain what you’re doing and why to colleagues and clients alike.
Further reading - "Lies, Damned Lies, and Stories" - Nick Maggiulli