Ryan A. Dunn, CFP®
Take a Break from the News
Updated: Oct 27, 2022
Next time a screaming head on TV tries to scare you into running for the hills, just tell yourself: “We’ve seen this movie before.”
No one knows exactly why 10-year market cycles occur—or what causes tipping points. But these classic films bring perspective.
Greed, hubris, herd mentality, and ethical collapse occur time and time again. Today is not that different.
Extreme market volatility. Inflation. Rising interest rates. Recession fears. it’s enough to get anyone discouraged about their finances. Regular readers of this blog know we frequently remind our clients to “tune out the noise” and stayed focused on their long-term plans.
To help you keep things in perspective, I’m sharing my list of favorite high-finance films with you. Most are fictionalized accounts based on real-world events and show just how susceptible we are to greed, hubris, panic, and the herd mentality throughout the ages.
As the chart above shows, there tends to be a period of rapid expansion in the middle of most decades, followed by irrational exuberance at the end of each decade, before things come crashing down at the start of the new decade and we begin the rebuilding process.
No one knows exactly why this 10-year cycle occurs and what causes the tipping points. But you might find comfort in the fact that what we’re going through today, is not all that different from the post-exuberance phase we’ve seen going back to the 1920s. Here are some common behavioral finance themes that Hollywood does a good job of recapturing in the films on my list.
Greed. “Greed is good” pontificated Gordon Gekko (Michael Douglas) in one of the iconic lines from the 1987 classic, Wall Street. The end of almost every decade in recent U.S. history has been marked by excessive greed and speculation before the masters of Wall Street get their comeuppance and come crashing back to earth.
Hubris. It’s a belief that the good times will last forever (think Jordan Belfort/Wolf of Wall Street) and that we’re smarter than everyone else including the big banks and regulators (Margin Call, Big Short) who are “asleep at the wheel.” We all know what happens eventually to people who think they have a “system” that can’t lose.
Herd Mentality. It’s a natural human instinct to follow the herd into buying assets when everyone’s making money (Glengarry Glen Ross, Margin Call, Big Short). It’s even more indicative of human behavior to head for the hills when it seems everyone else (and the new media) seem to be panicking.
Ethical Collapse. Accumulation of wealth, or the relentless pursuit of it, has been corrupting people since the beginning of time. At a certain point, wealthy people have more than they’ll ever need to pay the bills protect their families, and secure their future (Greed). It just becomes a way to keep score (Wall Street, Wolf of Wall Street). And then suddenly it’s gone.
Here are six of my favorites:
1. Margin Call (2011) When an analyst uncovers information that could ruin them all, the key players (Kevin Spacey, Paul Bettany) at an investment firm take extreme measures to control the damage. This film follows the key people at an investment bank during the early stages of the 2008 financial crisis.
2. The Big Short (2015) In 2008, Wall Street guru Michael Burry realizes that a number of subprime home loans are in danger of defaulting. Burry bets against the housing market by throwing more than $1 billion of his investors' money into credit default swaps. His actions attract the attention of banker Jared Vennett (Ryan Gosling), hedge-fund specialist Mark Baum (Steve Carell), and other greedy opportunists. Together, these men make a fortune by taking full advantage of the impending economic collapse in America.
3. The Wolf of Wall Street (2013) In 1987, working-class Jordan Belfort (Leonardo DiCaprio) finagles an entry-level job at a Wall Street brokerage firm. While still in his 20s, he founds his firm with a fake name Stratton Oakmont. Together with his trusted lieutenant (Jonah Hill) and a merry band of brokers, Belfort makes a huge fortune by defrauding wealthy investors out of millions. However, while Belfort and his cronies partake in a hedonistic brew of sex, drugs, and thrills, the SEC and the FBI close in on his empire of excess.
4. Glengarry Glen Ross (1992). Type-A New York City real estate salesmen learn that all but the top two producers will be fired at the end of the week. Competition skyrockets. Shelley Levene (Jack Lemmon), who has a sick daughter, does everything in his power to get better leads from his boss, John Williamson (Kevin Spacey), but to no avail. When his coworker Dave Moss (Ed Harris) comes up with a plan to steal the leads, things get complicated for the tough-talking salesmen.
5. Wall Street (1987) Bud Fox (Charlie Sheen) is a 1980s Wall Street broker full of ambition. Admiring the power of the unsparing corporate raider Gordon Gekko (Michael Douglas), Fox entices Gekko into mentoring him by providing insider trading. As Fox becomes embroiled in greed and underhanded schemes, his decisions eventually threaten the livelihood of his scrupulous father (Martin Sheen). Faced with this dilemma, Fox questions his loyalties.
6. Greed (1924) A housewife (ZaSu Pitts) wins the lottery. Life with her low-key dentist husband, John (Gibson Gowland), is slowly destroyed, in part by her increasing paranoia and in part by the machinations of a villainous friend, Marcus (Jean Hersholt).
Conclusion So tune out the news and check out these classic films on your favorite streaming service. Next time a screaming head on TV tries to scare you into running for the hills, just tell yourself: “We’ve seen this movie before.” If you or someone close to you has concerns about your investment plan or risk allocation in these volatile times, please don’t hesitate to reach out. We’ve helped many clients like you in similar situations.
RYAN A. DUNN, CFP®, Wealth Manager at Novi Wealth