One of our family’s favorite Christmas movies is Frank Capra’s 1946 classic, “It’s a Wonder Life.” It’s a story about George Bailey (played by James Stewart), a compassionate, but despairingly frustrated businessman, who in the end learns how important his seemingly average life really has been. The antagonist in the tale is one “Mr. Potter,” portrayed with a full measure of bile by Lionel Barrymore. Throughout the movie, George Bailey’s best hopes and dreams always seem to be foiled by circumstances well beyond his control, and Mr. Potter is always lurking nearby to make the hard times seem even worse.
As I reflected on this movie, I realized that both Mr. Potter and George Bailey might have made quite successful investors. Please indulge me for a moment while I flesh out this idea a bit.
Mr. Potter, as the wealthiest man in Bedford Falls, must have been an astute businessman. As an investor, I see him as a true contrarian and opportunist. During the bank crisis in the Great Depression, he was able to keep his cool and actually took over the town’s main bank. He was a buyer when everyone else wanted to sell. I suspect he would have been driven by the analytics of an investment. The valuation metrics and profitability stats would have been more important to him than “the story.” His focus would have been on the numbers and not the people involved in the stocks he would have bought. His weaknesses as an investor would have been his pride and maybe his greed. Overconfidence and the drive to make money for its own sake are common pitfalls for investors.
George Bailey, in his heart of hearts, may have been a bigger risk taker than Mr. Potter, but his circumstances would have forced him to be more conservative. I see him as a classic long-term investor. He was willing (maybe forced?) to forgo short-term wants for longer-term gains. Some of his actions led to great success by others (his brother Harry and his friend Sam Wainwright, who made millions in plastics) – in this way, he almost operated like a venture capitalist. When he made home loans to the people rejected by the bank (he was a sub-prime lender!), he realized the value of the people, not just the numbers. I could see him being very interested in investments such as alternative energy, which require a long-time horizon, and which may never pan out as expected, but could help not only the investor but also the world at large. His pitfalls as an investor would include liquidity risks – he always seemed to be short on cash and had to pass up some opportunities because of this. He could have been the plastics millionaire had he been more interested in his own wealth.
In the movie, the audience is immediately shown the evil/good contrast between Mr. Potter and George Bailey. Viewing them as investors erases this distinction to some degree. It is not clear to me which of them would have had the better investment performance record. Mr. Potter clearly had more money, but George Bailey may have beat him in total return and alpha generation. Also, it’s nearly impossible to say which approach is better. I see them both viable ways to invest. In fact, there are many, many ways to invest and each has its strengths and weaknesses.
In my view, the real key is finding a style that works for you and sticking with it.
And also remember the immortal words of Clarence the angel from this movie, “No man is a failure who has friends.” May you always have an abundance of good friends.