Peter Onsmark @ponsmark: "ABOVE THE LINE: The Blockbuster..."

Sweden

ABOVE THE LINE: The Blockbuster Era and Index Dominance 🎬 When Hollywood Changed the Rules There was a time when Hollywood embraced uncertainty. Studios developed dozens of films each year, knowing that most would fail. There were no formulas for success, no algorithms pointing the way. It was built on creativity, and on the possibility that one story might capture the imagination of audiences around the world. Then came Star Wars. George Lucas didn’t simply create a blockbuster. He changed how Hollywood measured value. A successful film was no longer judged only by ticket sales. Merchandise, books, television, licensing and, eventually, an expanding universe of sequels transformed one story into an asset capable of generating returns for decades. The economics changed almost overnight. Studios quickly discovered that investing another dollar in a proven franchise usually carried less risk than financing an unknown screenplay. The audience already existed. Marketing became easier. Retailers wanted the products before they had even seen the film. But there was another reason. As I wrote in The Star Actor Problem, executives are rarely rewarded for taking the biggest risks. They are rewarded for making decisions that are easiest to defend. If a new franchise film disappoints, the explanation is simple: perhaps audiences had finally had enough. If an original screenplay fails, the question becomes far more personal: Who approved this? Choosing the familiar doesn’t simply reduce financial risk. It reduces career risk. Hollywood didn’t stop making original films. It simply became much easier to justify financing the worlds that audiences already knew. Financial markets have undergone a remarkably similar transformation. 🎬 When Capital Chooses Familiar Stories For generations, investors searched for exceptional companies one at a time. Success depended on recognising tomorrow’s winners before everyone else did. Index investing quietly shifted that responsibility. Instead of deciding where each new dollar should go, millions of investors now buy the market itself through automated savings plans, pension funds and retirement accounts. It is one of the most successful financial innovations ever created, allowing investors to build diversified portfolios with remarkable simplicity. But every successful system shapes the environment around it. Because market-cap weighted indices allocate capital according to size, the largest companies naturally receive the largest share of every new investment. As they grow, their weighting increases, directing even more capital their way. Hollywood understands this instinct. Once a studio owns Star Wars, James Bond or the Marvel universe, every marketing dollar carries less uncertainty than launching an unfamiliar story. The franchise has already earned attention. Capital naturally flows toward what has already proven itself. The same principle quietly operates inside modern markets. That doesn’t mean the largest companies are undeserving. Quite the opposite. Many have earned their position through extraordinary execution over many years. But the structure itself creates momentum. Capital increasingly reinforces yesterday’s success because that is exactly what it has been designed to do. 🎬The Cost of Predictability Every system involves trade-offs. Hollywood’s blockbuster model produced some of the most successful films ever made. It also made it more difficult for original stories to secure the same budgets, marketing campaigns and global distribution. Independent cinema never disappeared - it simply had to fight harder for attention. Markets may be experiencing something similar. Passive investing has made wealth creation more accessible than ever before, but it also channels an extraordinary amount of capital toward businesses that have already achieved scale. That leaves fewer investors actively searching for companies that have not yet entered the spotlight. Ironically, the giants that dominate today’s indices were themselves once the kind of businesses that required someone willing to look beyond the obvious. Every great company begins before it becomes large enough for an index fund to buy it automatically. Perhaps that is why markets continue to need both approaches. The index provides discipline, diversification and a remarkably efficient way to participate in long-term economic growth. Active investors perform a different role. They are the producers willing to finance the unfamiliar project before anyone knows whether it will become the next franchise. Hollywood has always relied on both. Blockbusters keep the lights on. Original ideas ensure there will eventually be another blockbuster. Markets are unlikely to be any different. $CNDX.L (iShares NASDAQ 100 UCITS ETF usd) $GDX (VanEck Vectors Gold Miners ETF) $VTI (Vanguard Morningstar Total Stock Market ETF) $DIS (Walt Disney)

Not investment advice. The author may have financial interests in the mentioned instruments.