Millions of people + Movies    =  #1 Box Office Film

(Did the top movie make you happy?) or (sad?)

Or did you feel ripped off by another Hollywood hyped-up sequel/rip-off/re-make?

Adam Smith argued in his landmark text: The Wealth of Nations that an invisible hand leads the actions of an individual's self-interest towards a collective common good for all.  The key features of this invisible hand are that it is:

•  invisible (people are not aware of actions beyond their self-interest) and
• decentralized (without agreements or organizations coordinating to produce outcomes). 

The Wisdom of Crowds

James Surowiecki's book, The Wisdom of Crowds makes the strong case for the aggregate results of a  large sampling of diverse individuals, deciding independently, are likely to provide more reliable decisions and predictions than any one individual or expert.

"Any decision-making mechanism therefore has to be good under conditions of uncertainty.   And what’s more uncertain than the future?"  - From The Wisdom of Crowds by James Surowiecki

The key to success is not knowing the future but knowing what the vast majority of investors think (and feel) the future will be.   

Neuroeconomics and our Investing Brain

Neuroeconomics studies emotions and their role in decision-making.  We are not logical beings, but slaves to our emotional wiring from the beginnings of time. 
We think we are logical and rational, but reality is different: we feel and then act.

"Our investing brains often drive us to do things that make no logical sense – but make perfect emotional sense.  That does not make us irrational.  It makes us human...Emotional circuits deep in our brains make us instinctively crave whatever feels likely to be rewarding – and shun whatever seems liable to be risky." - From Your Money and Your Brain by Jason Zweig

Uncertainty vs. Risk

It was John Maynard Keyes who tackled the future in terms of risk vs. uncertainty.  If future events can be predicted through statistical models, risks can be quantified and decisions made with confidence to beat the odds.  When true uncertainty exists, decisions are made from emotional criteria, gut feelings or, in Keyes words, "animal spirits" which enable action without logic, rational, justifiable thought.

Learn how emotions like hope and fear have transformed decades into periods of depression and prosperity by reading MarketBOB's new book:

The Movies We Love in Times of Depression: The Lost Decades of the 1930s, 1970s and the 2000s

Using the MarketBOB Long Wave to Signal Market Trends

Investor confidence moves up and down, with gut reactions and survival instincts reacting to events from deep in our primal brains.  Investors follow the herd whenever possible, trusting the safety and collective wisdom of the majority.

What is the Mood of the Investing Herd Now?

The relentless BULL market since the opening weekend of Watchmen back in March of 2009 may be coming to a close.  That movie ended with the truth winning out over the smartest man in the world.  Thus, MarketBOB has labelled this rally THE TRUTH RALLY, driven by the faith of investors that the excesses of the sub-prime crisis are being dealt with by massive government intervention, regulation and enforcement.  Now we may have entered a possible new BEAR wave with A Nightmare on Wall Street. .

From the chart above, you can see this rally has been building for over a year now, with few dips until now. We now have an official 10% correction confirmed, so the Long Wave is BEARish.  A new BEAR Long Wave will kick in if we get a 20% drop from the highs of April 2010.  An extension of the BULL rally will be confirmed if the DOW regains the highs of April 2010.  For clues to when this might happen, MarkeBOB looks to the Short Wave analysis for weekly box office clues to investor emotions, and should turn bullish for the rest of June as we start the summer movie season (a typical bullish run of blockbuster movies).

Long Wave Trend Mapping of Doom and Gloom Movies helping Investors climb Wall of Worry

You may or may not believe in emotional waves directing the movement of stocks over the years, but you cannot deny the fury of crashes and the euphoria of bubbles.  These are emotional periods for everyone and, being human, they enjoy movies as a release and a comfort in times both good and bad.

Looking back, movies that succeed at the box office reflect audience's investment of time and money to be entertained.  They are "in the mood" for a laugh or a scare or a rousing battle.  Looking back, MarketBOB looks to the box office for confirmation that good times are here or that people feel scared or just wanting a good laugh of relief or joy. 

If you've always bought and sold stocks strictly on logic, then do not read any more.  But, if you've gotten carried away or hit the sell button in panic, you are part of the emotional investing herd and you need to understand how they feel.  MarketBOB's waves are one source, one input into greater understanding.  Better still, all you have to do to research the mood of investors  is go to the movies.  How great is that?

Finance as Entertainment:  The Finance Fan Club

Money is entertainment and occasionally a finance guy breaks out of the talking heads boredom league because he has a unique message and a unique delivery.  Welcome to the Financial Fan Club, where MarketBOB pays tribute to the very best, starting with: Howard Davidowitz, the Gilbert Gottfried of Finance!

Using the MarketBOB Short Wave to Track Confidence Right Now

Toy Story 3 saw a 7% drop in the DOW over 2 weeks.  The market reversed with Twilight Saga: Eclipse, with a strong 5% rebound and a follow up gain by Inception for three weeks at 5.3%.  The Other Guys was no joke, with the DOW dropping over 3% with another down week with The Expendables..  With light volumes and summer volatility, it may take a while to see if  the bear market direction which started with The Nightmare on Wall (Elm) Street follows through to confirm a new Long Wave direction.  We are in a volatile trading range awaiting a major breakout, probably to the down side based on movie mood sentiment.

Week-by-week Short Wave Trend Tracking for 2010

MarketBOB has tracked the top movie of the week and the subsequent week's performance of the Dow Jones Average since 1982.  MarketBOB has beat or equalled the DOW in every year.  The prediction accuracy to date is 71%, and the percentage of bull weeks predicted was 59%. 

Since the start of 1982, comedies, family and romance genres have a greater percentage of UP weeks vs. the market in general:

Quality had a greater influence on market direction than genre, reflecting audiences perception of value for money.  If you leave the theater feeling ripped off, your investment of time and money was wasted, and your confidence is down:

Story has a direct predictive influence on market direction.  Positive vs. negative stories affect the audience's mood:

• If the main character is depressed, so are you. 

• If the main character is bold, you will be too.

Read stock charts in a new lens: movie confidence in the story, quality and genre of investment decisions!

MarketBOB - The Market Box Office Barometer is created and updated by Sportscar Projects Ltd. 

It is part of the IDEAriffic.com  network of lateral thinking web sites.