We Love a Good Story

Consider what's happened in just the last year.

Before he was known for raising drug prices, Martin Shkreli was called a hotshot investor and a financial genius. He even started his own hedge fund in his early 20s. His investing acumen was profiled in Forbes' 30 Under 30 series. He was called a "hedge-fund whiz" and a "savvy investor." Of course, that was all wrong. The FBI accuses him of quickly losing virtually all of his investor's money and effectively running a Ponzi scheme.

Almost a year to the day before Shkreli was arrested, New York magazine ran a story about a 17 year old named Mohamed Islam who made $72 million day trading stocks on his lunch break. But of course, he didn't do that. Islam later admitted he made the whole thing up.

Bloomberg once called Mark Malik a "rising fund manager." Malik claimed his fund managed $5 billion and earned returns north of 200% - astounding, considering he was a traffic cop shortly before starting his fund. Of course, it was all baloney. Malik was arrested in March, accused of raising $800,000 from investors and spending it on himself.

On a much different level, Theranos CEO Elizabeth Holmes was lavished by the media for inventing breakthrough laboratory tests, praised as "the Steve Jobs of biotech." But an October Wall Street Journal article detailed how Theranos' products are actually less functional than many believed, with the vast majority of its tests being done on "traditional machines bought from companies like Siemens."

I only know these stories with the benefit of hindsight. But they share a common denominator we should be more aware of: Our insatiable appetite for a good story. Everyone loves a hero, so much that we often don't look past the cover.

I'm an optimist, driven by the belief that knowledge grows exponentially through generations. People can do amazing things. But, day to day, I advocate humility. Success is hard, and capitalism doesn't tolerate outliers very well. That's why we love stories of standout success, but it should also make us more skeptical of them. Outliers attributed to luck, embellishment -- even fraud -- are certainly higher than we want to believe. We should acknowledge that our desire for amazement is often larger than our ability to produce amazement. This is especially true in finance.

For more:

This article is part of Motley Fool Mindset, an exclusive behavioral-finance service in Motley Fool One. Click here for more.

The article We Love a Good Story originally appeared on

Contact Morgan Housel at . The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics


Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More