Would You Watch a Boring Movie?
In 2023, Columbia Pictures released Dumb Money – a real life underdog story set in the world of investing.1 The movie follows the exploits of an average guy who invests his life savings in the stock of failing video game retailer GameStop, and then uses his popular social media channels to urge other people to do the same—just so they can stick it to the big institutional investors who've bet on its value dropping.
As you might expect, the movie ends with the nasty rich guys losing their shirts and the little guy and his friends enjoying their wealth. Coincidentally, it was a good place to stop the story, as the highly volatile stock has since declined as much as 35 percent in the months following the film’s debut.
Economists Owen Lamont and Richard Thaler had this to say about the film, "Much as we enjoyed the movie, we are economists, not movie critics. And as practitioners of the dismal science, we worry that some viewers will continue to be inspired to copy the heroes' investment strategies, which is about as smart as driving home at 100 miles per hour after seeing The Fast and the Furious."2
They go on to point out that very smart people can do very dumb things when it comes to investing. Sir Isaac Newton, the inventor of calculus among other things, was less than brilliant as a speculator when he lost big in the South Sea bubble. We are all susceptible to overconfidence, financial ignorance, and the lure of gambling.
"The ineptitude of the individual is not for lack of trying," write Lamont and Thaler. "In fact, the harder that individual investors try (in the sense of trading more often), the more they lose." Perhaps this is why, on average, female investors fare better than male investors. Men tend to trade more often.
Of course, the prudent strategy for investing success isn't very exciting: Own a widely diverse portfolio. Rebalance it periodically. Follow a long-term plan. And benefit from the help of a trusted advisor.
"Admittedly," write Lamont and Thaler, "a movie about a bunch of ordinary people gradually building wealth through prudent financial decisions would be the world's most boring movie. Boring, but also not dumb."
Ironically, Dumb Money cost $30 million to produce and distribute, but made only $20 million at the box office, no doubt teaching its own investors a valuable lesson.
1 http://go.pardot.com/e/91522/wiki-Dumb-Money/94dqkb/2174269950/h/LLhnepdgNnGk7h3CePozAMNrSqtDWuSjqru-d4kxy3o
2 http://go.pardot.com/e/91522/oney-movie-gamestop-stock-html/94dqkf/2174269950/h/LLhnepdgNnGk7h3CePozAMNrSqtDWuSjqru-d4kxy3o
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