Investment Lessons from ‘The Godfather’

For film buffs and critics alike, ‘The Godfather’ embodies what celluloid magic is all about. Over four decades after its release, the movie continues to capture the imagination of audiences like no other, reaffirming its status as a classic.

But there's a lesser-known aspect of 'The Godfather'. Apart from being a source of inspiration to aspiring actors and filmmakers, the film has a lot to offer to investors as well. Following are investment lessons from ‘The Godfather’:

Barzini is dead. So is Phillip Tattaglia, Moe Greene, Stracci, Cuneo. Today I settled all family business

A laser-like focus on objectives and ruthless discipline in their pursuit, are defining traits of Michael Corleone’s personality. Be it protecting his family or safeguarding his business interests, Michael is decidedly aware of his goals and will do whatever it takes—sacrifice his career in the armed forces, join the ‘family business’ and even eliminate his rivals—to achieve his goals.

Similarly, investors would do well to set goals before they start investing. Goals can range from near-term ones such as creating a holiday budget, to long-term goals like a retirement kitty. Apart from making investing focussed, setting goals also helps in tracking progress. Thereby deviations (if any) can be easily rectified. Furthermore, being disciplined (read: curtailing wasteful expenditure, and investing regularly in line with a plan) will help investors stay on course to achieve their goals.

Some people will pay a lot of money for that information; but then your daughter would lose a father, instead of gaining a husband

Michael, a fugitive on the run in Sicily, is enamoured by a local girl. When confronted by her indignant father, Michael calmly reveals his true identity. Also, he lays out the options available, and the trade-off therein.

Likewise, while investing in market-linked instruments, investors must be unambiguously aware of the risk-return trade-off. For instance, a small-cap stock can deliver substantially higher return versus a large-cap stock; however, the potential upside comes at a price—higher risk, if the investment doesn’t play out as expected. Similarly, sector-focused mutual funds can outperform diversified funds, but they expose investors to higher risk. Hence investors must accurately understand the risk-return trade-off before making an investment decision.

Where does it say that you can't kill a cop?

When the Corleone family is under attack, Michael comes up with a seemingly outlandish plan that includes killing a corrupt police officer. His sound rationale wins over his sceptical associates. Essentially, Michaels’s willingness to think out-of-the-box wins the day.

At times, investors can be guilty of being orthodox in their choice of investment avenues. For example, some invest only in bank fixed deposits and small savings schemes because of habit rather than choice. By refusing to consider other apt options, investors run the risk of not meeting their investment goals.

For instance, an investor in his twenties who is saving for retirement 30 years hence, shouldn’t hold a portfolio comprised of only fixed deposits and bonds. Equities and mutual funds must find place therein. Remember, risk in itself isn't bad; rather, investing without being aware of it, and/or failing to correctly assess it, gives rise to thorny situations.

It's not personal. It's strictly business

Every character quoting this legendary line tries to convey that a given action should be seen as a business decision i.e. in a dispassionate manner. In other words, it has nothing to do with personal feelings. The 'not personal' part holds good for investments as well.

At times, investors get 'attached' to their investments. This is especially true of stocks and mutual funds that have had a successful run. The trouble starts when the investment avenue is no longer equipped to perform as it has in the past. Then there are misguided investments which fail to deliver, but investors hold onto them, hoping to ‘get even’.

This approach to investing is unwarranted. An investment is simply a means to an end i.e. the investment objective. If a thorough evaluation suggests that the investment is no longer equipped to play the part that it was supposed to, investors must salvage the situation by exiting the investment at an opportune price and time.

Tom Hagen is no longer consiglieri 

While expanding his operations, Michael sacks his adoptive brother/long-time associate, Tom Hagen from the post of consiglieri (adviser). Stating that Tom isn’t a wartime consiglieri, Michael replaces him with someone adept at strong-arm tactics, since the situation demands it.

Barring a small section of investors who can manage their own investments, others need assistance in the form of investment advice. Investors have a variety of options—distributors, advisers, robo-advisory firms—to choose from. Quality of investment advice can and does have a bearing on investment results. Hence, investors must perform rigorous due-diligence before engaging an adviser. Also, there is a case for reviewing the adviser’s performance at regular time intervals.

I'll make him an offer he can't refuse

In Godfather parlance, this iconic line represents a veiled threat. Refusal to comply with the offer can lead to dire consequences.

In the world of investments, there are periods when markets are frothy and irrational exuberance is the order of the day. In such periods, it is not uncommon for investors to encounter investment propositions that claim to offer a win-win proposition. For instance, an investment that offers high return with virtually no downside. That’s when investors must remember that if the 'offer' sounds too good to be true, then it probably is.