Investing is a box of chocolates

INVESTORS can sometimes learn from characters in the movies … take a look at these examples:

Forrest Gump: The main character played by Tom Hanks takes us on a journey through middle to late 20th century US, providing alternate perspectives on different events and lifestyles.

Forrest suddenly decides to start running and doesn’t stop for three years. No matter how bad the weather or how difficult the road gets. By simply putting one foot in front of the other, he gets where he wants to be. Nor does he wait for something to happen before he starts running. He runs for the sake of running. He doesn’t try to set any records or cross a finish line. It’s an approach that would serve investors well.

“Life is like a box of chocolates,” says Forrest. “You never know what you’re gonna get.” Investing is the same. There are only certain things you can control. You couldn’t control the 2008 financial crisis. You can’t control the Federal Reserve or China, or the price of oil. But, you can control how you deal with these. You can control the fees you pay, your asset allocation and how much you invest.

Stupid is as stupid does. Forrest is called dumb most of his life. But that doesn’t prevent him from achieving incredible things.

It’s your actions that determine where you end up. A theme in the film is that “It” happens. Bad things happen. “It” will happen to your portfolio too! Cut your losses and move on. There’s always another investment.

Forrest is constantly made fun of and told he is going nowhere. But he never lets it get the better of him. To paraphrase Warren Buffett, just because the crowd tells you you’re wrong, doesn’t make it so.

Forrest enjoys the simple things: reading, watching the sunset, conversing with strangers. Investing doesn’t have to be complicated either.

Louis Winthorpe III: Winthorpe is the character played by Dan Aykroyd in Trading Places, the story of a successful finance executive working for two successful brokers, Randolph and Mortimer Duke, who happen to be brothers. The Dukes somehow manage to switch his life with that of a homeless man named Valentine after Randolph bets Mortimer that he can successfully supplant “a useless psychopath like Valentine” for Winthorpe.

To their surprise, it works and Valentine soon becomes a successful finance executive, while Winthorpe becomes a degenerate. The lesson for investors: anyone can succeed and anyone can fail in the markets. Diligence and hard work should pay off, but it doesn’t always — regardless of background or pedigree.

Two extracts from the movie pertinent to investing: Winthorpe: “Fifty bucks? No, no, no. This is a Rouchefoucauld. The thinnest water-resistant watch in the world. Singularly unique, sculptured in design, hand-crafted in Switzerland and water-resistant to three atmospheres. This is the sports watch. $6,955 retail!”

Pawnbroker: “Got a receipt?”

Winthorpe: “Look, it tells time simultaneously in Monte Carlo, Beverly Hills, London, Paris, Rome, and Gstaad.”

Pawnbroker: “In Philadelphia, it’s worth 50 bucks.”

Value is subjective. Where you see value, others might not. But that doesn’t mean it’s not there.

Randolph Duke: “Good, William! Now, some of our clients are speculating that the price of gold will rise in the future. And we have other clients who are speculating that the price of gold will fall. They place their orders with us, and we buy or sell their gold for them.”

Mortimer Duke: “Tell him the good part.”

Randolph Duke: “The good part, William, is that, no matter whether our clients make money or lose money, Duke & Duke get the commissions.”

Master Yoda: A popular character in the Star Wars saga, the legendary Jedi master is more than 900 years of age and has learnt some important lessons along the way. Perhaps the most important of which he shares with Luke Skywalker when Luke says, “I can’t believe it.” To which Yoda replies: “That is why you fail.”

When making investment decisions, you want to be realistic, even sceptical, but at some stage you need to believe in what you’re investing. Most people go with the phrase, “I’ll believe it when I see it.” Sometimes you need to go the other way; you need to believe in what the others are missing.

Other advice from Master Yoda that can’t be ignored: “Fear is the path to the dark side”; “who’s more foolish? the fool or the fool who follows him?”; “difficult to see — always in motion is the future”; “you know better than to trust a strange computer”; “adventure, excitement, a Jedi craves not these things”; “do or do not, there is no try”; “patience you must have, my young Padawan”.

Beware of fear and greed, don’t trust market projections, keep within your circle of competence, invest for the long term, limit your risk, and stay the course. There’s another important lesson in Star Wars for investors: the Empire spends zillions on a Death Star, only to have it destroyed by a simple structural flaw. Their solution is to spend even more money building a bigger Death Star that ends up with the same flaw — only bigger!

Investors need to accept their mistakes and learn from them.

• Aragon Elessar: Aragon II, son of Arathorn, is one of the main protagonists in JRR Tolkien’s The Lord of the Rings. He plays an integral part in the quest to destroy the One Ring and defeat the Dark Lord Sauron. Despite all the bad things that happen, Aragon never loses sight of his objective. He would have made a great investor.

It’s not easy to stick to an investment plan. It’s easy to lose sight of the “why” during the investment process. And without the “why”, it’s easy to get sidetracked and end up playing with something that’s consumed you.

• Sally: In the film When Harry Met Sally, Sally shows Harry over a café lunch how easily a woman can fake orgasm. So persuasive is Sally’s performance that an elderly lady at the next table points to Sally and tells the waitress: “I’ll have whatever she’s having!”

In today’s volatile security markets rattled investors often decide that they want what someone else is having without necessarily knowing what it is, or what it might do for them.



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