Myth & Reality In Markets & The Movies

February 12, 2015

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today’s article features John Forlines III, chairman and chief investment officer of Long Island, N.Y.-based JAForlines Global.

 

It's Oscar season, and media coverage makes it easy to get caught up in the Hollywood money machine, but for some of us it's still about the art. There are many years when there are simply no great movies—the stuff that our grandkids will care about.

 

This is not one of those years. For our money, Alejandro Gonzalez Inarritu's “Birdman” flies above the rest as a magnificent statement of human failings, desires and above all, the perilous intersection between relationships and the nature of love. 

 

Michael Keaton plays a has-been superhero movie star trying to reinvent himself as a serious director and actor on Broadway. He has adapted a classic Raymond Carver short story, “What We Talk About When We Talk About Love,” as his comeback vehicle.

 

The ensemble cast with Edward Norton, Emma Stone, Zach Galifianakis and Naomi Watts make the harrowing process (for play investors and actors alike) of developing and opening a play come alive in a slow-burn mixture of fantasy, gritty backstage politics and emotions. 

 

So, what does this great art have to do with financial markets? What do we talk about when we talk about markets?

 

Let me count the ways.

 

1. Living Firmly in the Past is the No. 1 Investor Mistake

Michael Keaton's character is haunted by the vision of his incredibly successful Birdman franchise that ended decades ago. He thinks that doing a "serious" drama will transform him from a washed-up Hollywood icon into an artist.

 

But the search for career renovation has cost him his marriage and the relationship with his just-back-from-rehab daughter, played by Emma Stone. His redemption comes when he embraces the love of those around him and puts his past into proper perspective—it's something to cherish and evolve from, not to reject and regret. His future is uncertain (cue the ambiguous ending to this movie), but he's not afraid of it.

 

While looking at past investment cycles is a useful exercise, far too much attention is paid to "patterns" and "this year is like that year" analysis. As the post-2008 world has demonstrated, correlations and causations can stay out of whack far longer than most investors realize.

 

Instead of embracing uncertainty, many investors cry "fire" and run to the exits almost every quarter only to sheepishly crawl back in after the latest false alarm is revealed. Individual investors may be much better off (and happier) spending more time with their loved ones, families, communities and their own economic activities rather than worrying about 1929, 2002 and 2008 coming back to haunt their investments. 

 

 

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