Hope is a very bad investment strategy

This looks like an interesting development. Another “new” thing has cropped up. Some regional language movies are doing great – low cost and high revenues – amazing success stories and very high RoI (I mean, return on investment). Many investors are looking at the “alternative” investment to “diversify” their portfolios and at the same time earn very high returns.

Even start ups have come up to help people channelise their money into such ventures.

Regional movies are the buzz at crowd-funding startups

This seems to be great for regional movies, at least. There are many talented movie-makers, who could not compete against the mega-star, big-banner movies with deep pockets. Now, they seem to have found their source of funding.

Well, here is the caveat for the investors. This seems to be another case of “too much money, where to invest?” for the investors. Once one has run out of investment options (psychologically, at least), we start searching for newer options.

If you get success in some early investments, please be even more careful. The chances are that you might simply be lucky. However, we love to attribute all the success to our superior abilities – that is a human tendency. This would build your confidence, which eventually turns into overconfidence.

This overconfidence in one’s abilities leads to the search for even more risks. One tends to start looking at something that nobody is looking at – the spirit of adventure in us wants to seize this opportunity. And we leave the shores and dive into the deep seas.

Just as a side note, please check why did you think  of investing in movies? Is it because nobody else was doing it and you wanted to take the early-mover advantage? Or is it just that someone told you this was “exclusive”?

The combination of overconfidence, exclusivity and greed lead us to take interesting decisions.

Let us analyse this option from an investment point of view. Do regional movies make money? Well, yes they do. Do all regional movies make money? No. If we are clear on these two answers, any prudent investor should ask the next question: “How can one identify the next many-making movie? Do I have the capability? Or can I hire someone who has the capability?”

If I cannot identify the next money-spinner or if I do not know someone who can, it is imprudent to put my money on the block. That is not an investment, then. It is hope – a really bad investment strategy.

In the event of an investor recognising one’s inabilities to spot the right investments, the tendency is to look for what is cheap. This could be another trap.

Be careful. Understand the economics of the business before investing your money. If you don’t, stay away. Warren Buffett has famously said, “Invest within your circle of competence. It is not how big the circle is, it is how you define the parameters”.

 

#RidingTheRollerCoaster – 168

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