Use the Force, Jack!
This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 2 July 2016.
Our kids have recently discovered Star Wars and now spend their days whacking each other on the head with their light sabres while yelling out ‘Use the Force Luke!’ and ‘Feel the Power of the Dark Side!’ I probably didn’t help their Star Wars obsession by buying them each a Stormtrooper mask. It’s quite something when a Stormtrooper wakes you up at 4 in the morning, wielding a flashing light sabre and yelling ‘Daddy I’ve got to do a wee!’ As you would expect of one of the greatest movie stories of all time, Star Wars has a number of investment lessons for prospective investors (and no, mastery of the Force is not going to allow you to know which shares are going to go up before they actually do – I believe that’s part of the Dark Side, is also known as insider trading and comes with a spell at Long Bay Jail).
The first Star Wars investment lesson is this: just like Yoda, great things can come in small sizes. Don’t ignore a company just because it’s small; all big companies started out as small ones. Investing in smaller companies can provide a significant element of growth to your portfolio. Of course, just like Yoda tended to speak in riddles and was maddeningly difficult to understand, small companies can be difficult to accurately assess and value. What price do you put on a two-week old company run by two uni drop-outs from their garage? Sometimes nothing, sometimes it turns out as valuable as Apple or Microsoft. The second Star Wars investment lesson comes from Chewbacca: sometimes the best investment can be a little bit ugly and hairy and you’ve got to scratch beneath the surface to fund the gem within. Sometimes an unloved, unpopular and generally disliked investment can provide the best returns. Being contrarian and not following the herd can yield great results – just be sure that what you’ve found really is Chewbacca and not a cranky bear that wants to bite your nose off.
Finally, an important Star Wars lesson comes from that big slobbery thing known as Jabba the Hutt. He’s the one who freezes Han Solo in carbonite for use as a nice wall hanging, all over an unpaid loan. The message here is this – you may be good-looking and captain the Millennium Falcon, but too much debt can stop you in your tracks as effectively as a collapsed black hole. Watch your debts Luke! One more bonus lesson from Star Wars – if you do buy your kids light sabres, get them the foam ones first, it’ll save a lot of tears that can’t be fixed by any amount of Force.