I hope that by now, most of you who like George Clooney and Julie Roberts will have seen the recent release Money Monster. The movie, directed by Jodie Foster, is a thriller so I must be careful not give away the story. The entertainment industry is quick to pick up on popular sentiment and it appears that in America the general public really hate the Wall Street culture where they see people making millions of dollars while their relative incomes and standard of living has been falling for years.
Peter Travers, from Rolling Stone, finished his review of the movie with the statement ‘Foster’s film doesn’t doubt that money rules our lives. But it does wonder, provocatively, why we’re dumb enough to let it.’
I wanted to write about this movie as I saw it the day after I attended the Australian Investors Association’s annual celebrity lunch where Roger Montgomery was the guest speaker. One of his comments about the share market is that people tend to follow the share price. When it is going up everyone buys and when it goes down everyone sells. However, the price movement often have nothing to do about the actual company you are investing in and the profits it is making. His argument was to forget about the price and concentrate on a good company, that is making good profits. More importantly, he said to invest in companies which reinvests their earnings in making more profits than in those handing back the profits in the form of dividends to investors. At the end of the day, the investor will be rewarded probably double, if you let the company invest that money wisely by increasing profits and eventually increasing the value of the company. In the movie you will see how everyone is fixated on the price of the share.
There were a couple of terms in the movie you may not be familiar with. The first is quant trader. Quantitative trading consists of trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify trading opportunities. This structure is often used by large trading institutions who use high volume short term trading to make lots of small profits. If you are interested there are Quant Funds, which select their shares using quantitative analysis.
Another topic mentioned by Roger Montgomery was the ‘Black Swan’ event which disrupts financial markets unexpectedly causing a severe financial downturn. These events can’t be predicted because until they happen no one has experienced that event before. I would say the Twin Towers terrorist attack, now referred to as 9/11 was a Black Swan event. Who could have predicted an event like that and that it shut down transport and the share market for some days and eventually helped in a severe downturn in the share market.
As a thriller, this movie has a great story and I am sure you will ensure it. However, don’t being overly concerned about the backdrop story of the share market.
Glenis Phillips SF FIN – Good Financial Reads