Producing an Investing Strategy That’s Boffo

In Los Angeles, it sometimes seems that everyone wants to make a mint by writing, producing or acting in a screenplay. Alan Haft has another idea: Invest like a movie producer. It’s a far more certain route to riches.

Haft has a toe in both Hollywood and finance. The former co-founder of Breakheart Films and associate producer of the award-winning HBO special “Citizen Cohn,” he is now a registered investment advisor with offices in Florida and Newport Beach. According to Haft, Hollywood could teach American investors a thing or two. Namely:

Keep it simple. When pitching a screenplay, you have two minutes, Haft said. That means all the classic stories can be boiled down to a simple sentence. “E.T.” was about a group of children who help a stranded alien return home, for instance.

Investments should be equally easy to explain. When you buy stock, you get a piece of a company and a share in its profits or losses. A bond is an IOU. Investments that can’t be explained in a few sentences should be avoided by most people.

Work carefully. The stories are legion of great directors using dozens of takes to get a scene just right. It might seem like a lot of time and effort for a few seconds of footage, Haft said, but the right shadow can mean the difference between suspense and boredom.

With investors, taking care means reading the fine print. If you’re buying a mutual fund, read the prospectus, which discusses the risks, fees and focus of the fund. If you’re buying into a limited partnership or initial public offering, read the offering circular. That will tell you about the company (or partnership’s) management, experience and any limitations on your investment -- such as restrictions on when and how you can cash out.

Count costs. One movie, “Waterworld,” illustrates it for Hollywood. The 1995 adventure film with Kevin Costner brought in a respectable $88 million at the box office but cost more than $175 million to make. By contrast, “Babe” -- a movie released the same year about a pig who opts to herd sheep to avoid being turned into bacon -- earned $64 million in U.S. theaters but cost only about $30 million to make. Their worldwide revenue was similar, according to www.the-numbers.com, but because “Babe” cost less to produce, it was significantly more profitable.

When buying a mutual fund, the difference in costs isn’t going to appear as starkly. But someone who’s investing $10,000 a year in a fund with a 1% expense ratio will, after 30 years, build up $283,000 more in assets than someone paying 2% a year. That assumes both investments earn 10% annually before fees.

Investors get what’s left after costs, Haft noted. Keep them as low as possible.

Plan. After a movie gets the green light, its screenplay is broken into dozens of elements and producers draw up a plan for each -- camera shots, makeup, costumes, props, scenery, stunts, locations and, of course, budgets. This planning can take years, Haft said. But it makes a better movie.

The same can be said for your retirement. It’s also a big, long-term project that needs careful planning. According to a recent survey by the Employee Benefit Research Institute, fewer than half of Americans have attempted to figure out how much money they’ll need. Take the time to plan it out. If you can’t do it yourself, hire help.

Diversify. Like stocks and bonds, movie genres are cyclical. One year might be a winner for comedies; consumers may flock to horror or adventure flicks the next. Studios don’t bet the bank on one genre. Neither should you.

Everybody should have some stocks, some bonds, some foreign investments and some cash. That virtually ensures that something will be hot -- and, likely, something cold -- in your portfolio every year. But because investments are cyclical, what’s hot and what’s not is likely to be different each year. Diversification makes returns more consistent, albeit more moderate. It may not be sexy, but neither is being broke when you bet wrong.

Don’t reinvent the wheel. Myth scholar Joseph Campbell wrote decades ago that many great tales have a common structural foundation: A hero from the ordinary world receives a call to action, refuses, changes his mind and takes on the challenge. Movies from “Star Wars” to “The Lion King” still follow that formula.

Investment greats, Warren E. Buffett among them, have followed a script as well. They use discipline and research to pick companies with strong earnings potential.

They don’t invest in “story stocks.” They don’t cotton to “new paradigms.” They don’t trade based on passing fads. The people who claim that “this market is different” were the ones who invested in the tech bubble, and many regretted it.

The foundations of movie magic and intelligent investing were developed long ago, Haft said. Sticking with the tried and true gives you the best chance of success.

Where there’s a will, there’s a way. While shooting “Apocalypse Now” in the Philippines, Francis Ford Coppola had to deal with rebel uprisings, star Martin Sheen’s heart attack and financial problems requiring him to put up millions of his own dollars. Finishing the movie took three years. But it won two Oscars.

The moral of this story: Nobody ever said it was going to be easy. Every investor will face hurdles, whether it’s having too little time to research good stocks or not enough money to invest in them. No matter the hurdle, Haft advised, keep at it.