Deja Vu Investing and the Sequel of Ker-ching

2003: The Curse of The Black Pearl

As you will have gathered, I'm a financial planner that likes films, probably partly because I enjoy a good story - something that I get to hear from clients (the story of their life to date...in part! but perhaps more interesting is where they plan to take the story in the years to come). Anyway, I was bombarded by more emails about "new investment funds" which frankly all seem to be very much alike, which prompted me to reflect on the sense of "deja vu" that I sometimes also experience with film.

There are probably a wide range of reasons why there are so many sequels in the film world. The worlds highest grossing 50 films contain 40 films that are part of a series - Pirates of the Caribbean, Lord of the Rings, Harry Potter, Indiana Jones, Star Wars, Shrek, Spider-Man, Jurasic Park and believe it or not Transformers to name a few. A cursory glance at a theme park list of rides and you will see this theme further "monetised". There is very much as sense of finding a "cash cow" and milking it for all you can - or the goose that continues to lay golden eggs. This might be said of the investment world too, where new fund launches become a "me too" bandwagon form of investing. The film world is much like momentum investing - a popular film begins to gather momentum, becoming a global success. Investment Companies also spend considerable sums on marketing to tell us all how fantastic they are in the hope of gaining further momentum. Unlike film though, the ticket price will not be pretty much the same for everyone, those in at the beginning will benefit far more than those towards the end - which has no direct comparison to film, which is essentially a fixed but unique (because of the viewer) experience. Investing once the news is out, is a bit like arriving late at the party, it has happened (largely) the greatest profits have been made and the original investors have probably sold out for a higher profit to an investor that wanted to catch some of the action, all too late. This is the often forgotten key principle for professional investors, like those appearing on Dragons Den.

When it comes to investing, the greatest returns are invariably achieved by the first few investors, this is a high risk strategy that most of us are unlikely and unwilling to risk - after all it could go horribly wrong for a new investment (there is a higher chance). So most tend to wait until the good news is confirmed, by which point the opportunity will have largely passed. This constant chasing of returns and becoming disillusioned tends to cost investors considerable sums, often eroding their asset values. This is one of the reasons why I discourage clients from playing the game - which is unwinnable for most people. There is an alternative though, one that will reduce costs and provide better results. Unlike the films that entertain millions (and make millions - for example, the Pirates of the Caribbean series has taken over $3.7bn in worldwide box office tickets) investing should not be about being taken along for the ride.