A Lamborghini dealer, a mental institution, a sibling road trip, and a trip to Las Vegas. What do these all have in common? The 1988 motion picture Rain Man starring Dustin Hoffman and Tom Cruise.
The film about an autistic savant, Raymond (played by Hoffman), and his wheeler-dealer younger brother, Charlie (Cruise), sees Ray’s unique set of skills put to use to help Charlie out of a financial bind.
It might seem like an odd analogy, but the film can teach your clients a few key lessons about the benefits of adopting an evidence-based approach to investing.
Rewind to the late 80s and read on to discover the ins and outs of evidence-based investing and what a savant’s trip to the casino can teach your clients about the strategy.
Evidence-based investing ensures the house doesn’t always win
Risky investors can sometimes approach the stock market like they’re entering a casino, pouring money into a stream of new investments trying to chase that “next big thing” — tomorrow’s Amazon, Apple, or Google — to make significant gains.
American businessman Charlie Munger aptly said: “We have a stock market which some people use like a gambling parlour”.
But investing shouldn’t be treated like gambling. It has much more in common with gardening; your clients should plant seeds and patiently wait for them to grow.
It seems like a leap then to frame evidence-based investing within the context of two brothers’ trip to Las Vegas. But the key is how Raymond and Charlie approach their trip to the casino.
For those unfamiliar with the film, Tom Cruise’s Charlie is a young, cocky entrepreneur who has recently gone all-in on an investment in grey market Lamborghinis for US resale. Charlie makes the cardinal sin of putting all his eggs in one basket, which all savvy investors know is a fool’s errand.
Charlie discovers that his wealthy father has recently passed away and left his millions to an unnamed trustee at a local mental institution. Charlie soon discovers this to be his autistic older brother, Raymond, whose existence had faded from memory.
Raymond has debilitating autistic traits that leave him unable to care for himself or handle his emotions. However, he also has savant syndrome and is blessed with impeccable recall, as well as the ability to rapidly calculate complex equations.
Charlie initially checks Raymond out of the institution as part of a scheme to gain control of his father’s inheritance, but ultimately as a result of the pairs’ cross-country road trip, learns to appreciate his brother and their unlikely bond.
Charlie’s creditors repossess his Lamborghinis, forcing him to refund his buyers’ down payments and leaving him in deep debt. Having passed Las Vegas on their road trip, he and Raymond return to Caesars Palace on the Strip and decide to use Raymond’s unique abilities to play blackjack and win by counting cards.
Evidence-based investing is passive, relies on factual knowledge, and has a long-term view
At Grey Parrot, we’ve found that that there is a greater probability of success when a passive investing approach is adhered to that relies on data, studies, and extensive research over trying to beat the market by chasing gains from short-term bubbles or relying on gut instinct.
We focus on a system of evidence-based investing, also known as “smart investing”, to develop a strategy for your clients’ portfolios.
We know not just from personal experience but from actual, cold hard data, that over the long term investments, typically produce positive returns.
IG reported on the average returns from the FTSE 100, the UK’s leading stock market index, between 1984 and 2019. They found that over any 10-year period investments in the index averaged annual returns of 8.43%.
Raymond and Charlie may have entered a casino in order to win the money Charlie so desperately needed, but they didn’t do so with a gambler’s mindset or with the intention to ride their luck or follow a gut feeling — they sought to make gains using knowledge and mathematics.
Evidence-based investing involves a “buy and hold” approach alongside assembling a highly diversified portfolio with low fund costs. This method is more likely to help your client’s investments avoid underperforming the market and ultimately generate the gains needed to meet their long-term goals.
Just like Raymond’s card counting — a tactic we don’t actually condone unless you want to end up on the wrong side of casino security — evidence-based investing involves a mix of calculations and patience to deliver the desired result.
As renowned inventor and statesman, Benjamin Franklin, put it: “An investment in knowledge pays the best interest”.
The alternative to passive investing — active investing — isn’t just ineffective in the long term, it can be expensive too. By working with Grey Parrot, we can put together a plan for your clients that looks to outperform the market without the significant burden to their time and money that an active approach could cost.
In keeping your client’s costs low, more of their money remains invested. This ultimately gives them higher compounded returns throughout their investment timeline.
Raymond and Charlie successfully played the system and walked away with enough money to pay off Charlie’s debts. They also left with a newfound sibling bond that meant more to them than any financial gain.
At the end of the day, as much as financial planning seeks to help you generate growth on your money, at its core it’s about improving the quality of your life and helping you to achieve your desired lifestyle. Raymond and Charlie came away with both from their adventure together.
Get in touch
If your clients are unsure about the best strategy for approaching their investments and long-term plans, they should contact us by email at mail@grey-parrot.co.uk or call us at 02039 871782.
Please note
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
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