Hollywood and the Art of Investing:

Film Producer and Investment Expert Reveals...
10 Lessons Hollywood Taught Me About Investing

       Alan Haft isn't your typical personal finance and investing guru. Before servicing a wide variety of clients across the country with innovative financial planning, he was a successful Hollywood producer who oversaw the development of many films and TV projects in a film production company he started with famed actor James Woods and worked with the likes of Oliver Stone.
       Two completely separate worlds? Think again. Haft sees many parallels between Hollywood and personal investing, and uses his film experience as a basic guideline for the financial advice he provides. "The road to success and profitability in Hollywood in many ways mirrors the principles of personal finance and investing," says Haft. "The entertainment viewed on TV or in theaters is an example of either prudent decision making based on proven principles, or short-lived flops hastily created as a result of poor planning. The studio hotshots and high-profile actors can teach the public an awful lot about managing money." Some cases in point:

Lesson 1: Keep It Simple

       Hollywood: I've pitched many projects to studios over the years, and if you can't tell your story in a few minutes or less, you'll never get one made. All classic movies can be reduced to a simple sentence. Any more complicated, forget it. Learn from ET: it's a story about a group of children who help a stranded alien return home. One sentence. $756 million dollars. Just the way Hollywood likes it.
       Investors: Here's an important simple sentence: The S&P 500 index typically outperforms most mutual funds. Period. For those investing in the S&P and nowhere else, they have a better chance of success than a phone book of investments that are impossible to keep track of. For those of you who think frequent trading through professional money managers earns more dollars, I offer this humbling statistic: there are roughly 8,000 mutual funds in the country. Each fund typically has approximately two professional money managers that are trading stocks all day, trying to pick the winners. That's somewhere around 16,000 managers. And out of those managers, guess how many have successfully outperformed the static, untraded and mindless S&P more than 10 years in a row? Answer: just one. Bill Miller from Legg Mason.
       Lesson Learned: While it makes absolutely no sense whatsoever to put all your money in one place like the S&P, the concept prevails: you don't need a complicated portfolio for it to be effective. Some of the most successful portfolios created are easy to monitor, simple to understand and very efficient.

Lesson 2: Details Matter Most

       Hollywood: My close friend James Woods told me when shooting the epic "Once Upon A Time In America," legendary director Sergio Leone shot over 50 takes of a dinner scene just to get a spoon in the right place. Screenwriter Peter Shaffer wrote something like 60 full length drafts of his masterpiece "Amadeus," then another dozen or so to refine it. Writer/Director Cameron Crowe once said he spent well over a year doing absolutely nothing except writing one of the truly greatest screenplays in recent years, "Jerry Maguire."
       Investors: A financial advisor touts an appealing investment. Sounds decent so you quickly agree to move money in, only to realize a month later it's a Limited Partnership that can't be sold for another ten years.
       Lesson Learned: The fine print of any investment is more important than the window dressing itself. Ask questions, read the details and if the spoon isn't in the right place, take your time to get it right.

Lesson 3: Costs Count

       Hollywood: An actor's last movie grossed more than the Gross Domestic Product of Norway. He pitches his pet project and the studio green lights it. While everyone works very hard for it to be a big hit, the budget skyrockets and the movie has a negative return of $250 million before anyone sees it.
       Investors: A star money manager with a fantastic track record takes over the reins at a popular mutual fund. The offices are filled with expensive furniture, great food, a couple of espresso machines and fine art. Who's paying for all this stuff? You are; they're taking it right out of your own pocket. Regardless if the money manager makes you money or loses it, it's you funding his salary and overhead.
       Lesson Learned: Fees kill returns. Take for example an investor who recently couldn't understand why he wasn't making much money. A review of his holdings led him to conclude he was paying a whopping 4% annual fee on an investment of $600,000. Over 7 years, that's roughly $168,000 in fees alone. Ouch.

Lesson 4: Planning is Key

       Hollywood: Once "green lit" into production, a screenplay is broken down into extremely precise line item movie making elements: costs, schedules, camera shots, make-up, hair, costumes, props, scenery, stunts, transportation and a thousand other things. On set, minutes can easily cost tens of thousands of dollars. A well planned production is an incredible engine of extremely intelligent efficiency, often with hundreds of people knowing exactly what they are doing every moment of the time, all building towards one very definitive common goal: the date of release.
       Investors: You're a few years from retirement and you suddenly wake up wondering how you're going to generate enough income off your savings. Someone does a quick calculation, and you quickly realize you're not going to make it. In a last ditch effort to retire on time, you move your money into the risky stuff, hoping for a very impressive rate of return which never quite happens. Dejected, it looks like your working life is going to be prolonged by at least a few years.
       Lesson Learned: Some movies take many years just to plan. The smart guys realize success just can't be rushed. If you want your investments to end with an Oscar, hardcore planning always provides the greatest chance of success. Remember: this is your life we're talking about, not some two hour movie.

Lesson 5: Cut Your Losers and Ride the Winners

       Hollywood: By 7pm on opening night, movie studios can predict with incredible accuracy, the revenue a film will likely generate. Even more startling is the DVD market. It's estimated that by 3pm the day a DVD is released, the studio can accurately predict how much revenue it will earn. So what if the film is going to be a dog? Do they pour more money into advertising hoping someone will love it as much as the studio once did? No way. Ad expenses are immediately cut, and in some cases, they are completely eliminated.
       Investors: You buy a stock and just love the company. For a little while it climbs, then dips, and dips, and dips some more. You're watching it do nothing but drop. But again, you just love that company. Your broker reinforces your emotions and keeps telling you "it will come back," but it never quite does.
       Lesson Learned: As much as the studio execs might love a film, they rarely let their emotions make decisions over the math. If the thing isn't working, they cut losses and just let it go. When it comes to your investments, you need to do the same. A stock doesn't know who you are and it has no emotion. Only you do. And as soon as you let that get in the way, bad things usually happen.

Lesson 6:
Experts Focus on Reducing Risk, Novices Focus on Return

       Hollywood: Many films have nearly bankrupted their creators: Hudson Hawk, The Last Action Hero and Cutthroat Island are just a few examples. As a result, partnerships on expensive features are now the norm. Take for example James Cameron, who one day gets an idea to make a film about two people that fall in love on a sinking ship. One sentence, at least $200 million to produce. So what does Fox do? They partner with Paramount to reduce the risk. Easy to look back and say they should have taken the risk to get all the return, but who would have thought Titanic would go on to become the most successful film ever made?
       Investors: In a recent New York Times article, retired Fed Chairman Alan Greenspan stated he invests 95% of his money in US Treasuries. Investment guru Suze Orman said most of her money is invested in Government Insured Municipal Bonds. Together, they are totally focused on only one thing: keeping their money, not risking it.
       Lesson Learned: It's simple: if you don't need the return, don't take the risk.

Lesson 7: Diversification is Key

       Hollywood: A typical studio releases somewhere around twenty films per year with many genres covered: romantic comedies, science fiction, drama, action, teenage comedy, etc.. Why? Easy: they know it's impossible to predict which genre will be hot. Some will win, some will lose, but one thing is for sure: reducing risk through diversification always provides the best chances of success.
       Investors: Forget the line Oliver Stone wrote for Michael Douglas in "Wall Street." Greed is not good. Greed can totally ruin your life. If you need proof, ask anyone who was too heavily invested in Tech during the late 90s.
       Lesson Learned: Whether it's the lineup of this year's studio releases or where to invest, diversification amongst the asset classes is the first rule of sound investment success.

Lesson 8: Don't Reinvent The Wheel

       Hollywood: In the 1940s, a writer named Joseph Conrad wrote a pioneering thesis entitled "The Hero With a Thousand Faces." The exhaustive study concluded that regardless of plot, all great tales from the beginning of time share a very distinct, common structural foundation: the hero is introduced in his Ordinary World, he receives a Call To Action, he Refuses the Call, a Mentor convinces him to cross into the Unknown, etc., etc. Whether it's stories from the bible, "Star Wars" or "The Lion King," he proved how every timeless story can be reduced to a distinct group of core structural elements.
       Investors: Warren Buffet along with many others, myself included, consider Benjamin Graham's "The Intelligent Investor" the bible of investing: invest not to maximize profit but to limit loss, use discipline, research, and analytics to make unpopular but sound investments in undervalued stocks - it's these principles that have withstood the test of time and created significant wealth for Buffet and those who stick to Graham's most basic fundamentals.
       Lesson Learned: The foundations of movie magic and intelligent investing were developed a very long time ago. Whether it's your next screenplay or stock pick, following the basics usually gives you the best chances of success.

Lesson 9: Complacency is the Mother of all Disasters

       Hollywood: The studio and production team can easily take a year to plan the shoot. But on location, anything can happen. Some personal experiences of mine: stolen cameras, violent weather, an actor nearly overdosing on diet pills, an angry mob running the crew out of town, a generator falling off a cliff, acute food poisoning, stray horses and a missing costume truck a hundred miles away from civilization are just a few of many unexpected examples. Some of the best people I've worked with have saved entire productions by anticipating, taking action and making rapid fire decisions.
       Investors: Check out www.morningstar.com. Take a look at the list of last year's top performing funds. Then look at where they are today. Certainly with some exception, yesterday's top performers are usually this year's dogs. Like a good film crew, the sharp investor understands that constant monitoring, rebalancing and updating a portfolio on a frequent basis is absolutely essential for success.
       Lesson Learned: Stray horses and missing costume trucks won't kill you - complacency will. Whether it's making a film or investing money, anticipation, action and quick decisions are the certain keys to anyone's success.

Lesson 10: It There's a Will, There's a Way

       Hollywood: While making "Apocalypse Now," Francis Ford Coppola overcame a civil war, Martin Sheen's heart attack, personal bankruptcy, unimaginable shooting conditions and death to get his classic film done. Spike Lee was basically broke when he made "She's Gotta Have It." Reading his book on making that film is a lifelong lesson in perseverance and fearless courage. With only a few dollars in his pocket, he somehow found a way to get actors, a crew, film, cameras, locations, costumes, sets, music, editing and a great finished product. End result: a fantastic career filled with an extremely impressive body of work.
       Investors: Some of the most successful investors I ever met started with very little. They basically had nothing, but year in and out they somehow found a way to continually stash a little money away in smart, efficient investments. End result: a fantastic retirement with an impressive standard of living we'd all be extremely satisfied with.
       Lesson Learned: Like most great film Directors, Spike Lee "saw" his completed film way before it was finished and nothing stopped him from getting it done. Likewise, envision your retirement the way you want it to play out and with all the lessons above, do whatever it takes to make sure it has nothing but a happy ending. I wish you the best of luck and may your own life earn itself a few of your very own personal Oscars.
       Editor's Note: Alan Haft is based in Boca Raton, FL, New York City and Newport Beach, CA. A well-known personal finance expert, he holds many financial certifications and has a diverse array of clients across the nation. In the early 90s, Haft, with veteran actor James Woods, formed Breakheart Films. While serving as Vice President of Breakheart, Haft was involved with numerous feature film and television projects such as "Killer" (with Oliver Stone as Executive Producer) and serving as Associate Producer, HBO's Best Picture Emmy Award winning feature film, "Citizen Cohn." Website: www.alanhaft.com.