Portfolio theory suggests that diversification across asset classes is an attractive way of taking some limited incremental risk for an overall higher return.
If you’re wealthy, you’ll have much of your portfolio in government bonds, quite a lot in corporate bonds, a little less in property, something less again in equity, a very little in derivatives, and a tiny amount in uncorrelated high-risk investments.
The cash in the bank is earning interest—unless it’s in a Swiss bank, in which case you’re paying them to keep it safe. Such are our times. You have a minimum cushion there to cover your obligations, but you want to keep moving it up the scale of risk to increase your return, and your joy. Ah, life!
Your government bonds may be the fruit of your futures investments, but we’ll get there in a minute.
Investment-grade corporate bonds of course are issued by large companies. From property you have income in rents. Your equity is committed to shares in companies, and possibly film investments; the cash is no longer in the bank: it is irretrievable, and therefore high-risk.
Past this point on the chart, everything can go to zero.
Derivatives include options and futures. A government bond can have a future; i.e., you can bet on the price of the bond down the line without owning it; but if you hold a future you are obliged to buy that bond at a certain point in the future. If you hold an option you have the right, but not the obligation, to buy or sell at that price.
Finally, we come to uncorrelated high-risk investments. Let us call them “derivatives plus.” Typically they mean films and musicals. They are uncorrelated because, if the economy fails, the safer investments can tank, but films and musicals can be hits even in a depression. They are high-risk because they usually go zero.
Why on earth should you put money in a film? Because the incremental risk (the extra risk, on top of what you already have), in the context of the total portfolio, is minimal. And you give yourself the opportunity to meaningfully increase the portfolio return. The joy.
That’s why high-risk investments exist. It’s where the demand comes from.
All of these elements can be probability-weighted. You could argue that the expected return in film investment should be viewed as zero. But this fails to take into account that tail-end events can and do happen, with a frequency that cannot be correctly estimated.
If your portfolio includes 20% in equity, and 5% in option-like investments, then it can include all sorts of derivatives, as well as venture-capital funding, and investments in films and musicals.
Now, if you’re still with me, I’d like to propose something that will weigh lightly on your portfolio, and can give it joy:
I’m making a film for the looooooow budget of one hundred thousand euros, aka one hundred and thirty thousand dollars. And I’m selling twenty shares in that budget for five thousand euros / six thousand five hundred dollars each.
Why on earth should you put five thousand euros in a film? Well, you already know.
How can I do it so cheaply? We’re making it in Greece, where costs are low, technicians are out of work, and actors (like actors everywhere) are ambitious enough to defer their fees (which will afterwards come out of my profit, not yours).
How can I promise you joy? It’s a romantic thriller we’re making—the most popular, the most saleable, the most profitable genre in the world. And the story is compelling, something we’ll all be proud to be associated with.
With a budget of that size the risk is rock-bottom—and if you’re new to film investment, it’s not a bad place to start!
A business plan, a slide show on the project with details on everyone involved, and of course the script, are available on request. There's a brief overview here, and there are some details about me here.
Call me up and we’ll chat.
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