Hollywood on trading

Sky One recently showed an interesting HBO documentary, titled ‘Tinseltown’s Bombs & Blockbusters’, in which producers, directors and actors talk about the movie making process. Here are some of the more obvious parallels with trading:

  • Motive: Making a movie with the financial end in mind is often destructive. Instead of thinking about making a blockbuster and working backwards, it can be more financially and emotionally rewarding to focus on making a good film, with quality production, good acting, and a polished script (ie to focus on the process rather than just the end goal).  Likewise with trading, I find it detrimental to focus on nominal profit targets.

  • Naysayers and other outsiders: Many big budget, effects-laden films are money-losing turkeys, and when Titanic was being produced the media wrote it up as potentially the biggest turkey of all time. But the people behind Titanic knew they had a good product, and they got over the hurdles and ended up with a blockbuster. Trading is also full of naysayers and advisors, but at the end of the day, it is the responsibility of the trader to follow his or her own path. It pays to listen to other people when practical advice is offered, but only you know the true worth of your trading strategy.   

  • The fine line: I was surprised at how the majority of people interviewed in the documentary agreed with the notion that there is a very fine line between blockbusters and bombs. From the outside, as movie-goers, we look at the finished product and sometimes think ‘they must have known this was going to flop’, but the reality is that studios never green-light films thinking they won’t work. In the world of trading, it is easy to look at big hedge fund stars as being worlds apart from the funds that are losing clients and bleeding money due to sub-standard performance. In reality, the line between the two groups is probably much finer than we realise.

  • The script: In the documentary, George Clooney and other industry players comment that the quality of a film hinges on the script. A strong script has the potential to turn in to a block-buster, provided the acting and direction is up to par. However, if a script is poor, no amount of quality acting and direction can rectify the problem. The script is the heart. In trading, the strategy can be thought of as the script. A good strategy with a positive expectancy can be ruined by poor execution, but a strategy with negative expectancy cannot be profitable, even if you have truly mastered discipline and execution.

  • ‘Nobody knows anything’: This phrase (originated from William Goldman) has been adopted by Hollywood to sum up the industry and the uncertainties in film making. Surely, it applies to trading at least as much as it applies to film-making.

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