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— Zoe Saldana, Star Trek

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Broke is a slick, fast-paced documentary about the economic mess that the United States is currently in. There are interviews with fascinating people (including some Nobel prize winners in economics). There are ideas about money that are both common-sense and yet unconventional. It’s a nice balance of positive — how people can still make money — and negative — who’s to blame for some of our current messes.

Unfortunately, the film has more polish than substance. Try to boil down the film’s message and you’ll get incomplete or conflicting advice on what to do with your money. If you’re not savvy, you may end up worse off than if you hadn’t seen Broke and taken its advice.

Bullets from a Shotgun

"Don't follow the herd" is only good advice if the herd doesn't follow it
“Don’t follow the herd” is only good advice if the herd doesn’t follow it

Broke covers a lot of topics in a little depth. In the spirit of the film’s shotgun approach to economics, we present three bulleted lists about the movie:

You might learn from Broke:

  • There are a lot of empty houses in this country
  • Some people got mortgages with no money down.
  • Jim Cramer sure is a noisy TV personality
  • A lot of people play the lottery and wrongly believe that it’s an investment
  • Poker is better than the lottery because the payout of the game is better (the interview subject implies that the payout is 1, but that’s only true at your friend’s house)
  • 100% of poker players interviewed are smart and rich
  • 0% of poker players interviewed are losers at the game

You will hear this advice in Broke:

  • You should not play the lottery
  • You shouldn’t necessarily do what Jim Cramer says
  • Don’t follow the herd
  • Darn the government for banning hedge funds and online poker but endorsing lotteries
  • Process is more important than outcome - good process takes care of good outcome
  • The market is like poker in that you can do everything right but till lose, so it’s more risky than, say, chess
  • “Buy and hold” is for suckers

Broke fails to address:

  • If everyone stops following the herd at the same time, then that too is herd mentality
  • Poker is a zero-sum game. Every dollar won is a dollar lost somewhere else. By definition we can’t all be winners. (In the market, however, wealth is created and destroyed.)
  • Two traders advise that you should be willing to take a quick loss rather than riding a stock down. But if everyone wants to take a quick loss at the same time, there will be no buyers for down-trending stocks, and everybody will lose everything.

These last three contradictions have to do with separating yourself from the herd. What Broke doesn’t say, but what is basically true, is that there will always be a herd who doesn’t follow this movie’s advice. Your best bet is to separate yourself from it. Gains are made when the herd makes mistakes and you can profit from them. This advice is only sound if some people don’t take it. In other words, it’s good advice unless and until it isn’t good advice.

Broke in one Sound Bite

The shot that resonated most with me, and which sums up my impression of Broke, features the talking head of an actress. She says she’s content to make 8% in her mutual funds and focus her energy instead on acting. The shot is gone before you’ve even digested it; it’s in a section of the movie calling people chumps for buying and holding.

But buying and holding an index fund or a mutual fund is not the same as buying and holding a stock — another distinction never fully explained by the movie. No less a figure than Warren Buffet recommends buying and holding an index fund for people with other interests than playing the markets.

And if the actress can get an 8% return — a reasonable assumption — then she still beats inflation and retires at a reasonable age with enough money to live indefinitely. Yet the movie includes her perfectly reasonable comment in the section on what people do wrong, without making its case that she should want to play the markets.

The movie blew past her with too many assumptions and too little explanation, and that seems to be the case with the rest of the movie as well.

I found some good nuggets in Broke, (“process is more important than outcome”), but the movie has too much on its mind to really drive home a few important and practical points. And as for those good nuggets, they get lost in the bustle about housing, poker, lotteries, and Jim Cramer.