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Emotion in Investment in "Margin Call"

by Charity-Joy Acchiardo

In a scene from the 2012 film “Margin Call”, an analyst (Sullivan) uncovers information that shows the firm is about to be financially ruined due to the falling price of their assets. Jared Cohen's solution is to “sell them all”, in a fire sale before the market learns of their worthlessness, thereby limiting the firm's exposure. The CEO (Tuld) compares the situation to musical chairs: when the music stops, the last one standing will be left with worthless securities. But Rogers warns that this will spread the risk throughout the financial sector. “You will kill the market for years” he argues, and “you will never sell anything to any of those people ever again”. Emotional investors are often driven to “buy high, sell low”, the opposite of what they should be doing - out of fear and a desire to cut their losses. In 2009, investors stampeded out of stock funds in response to the sharply falling markets. Psychological factors matter even in markets.

Emotion in Investment in "Margin Call"

Analyst Sullivan shows the firm is about to be financially ruined. Jared Cohen's solution is to sell all assets in a fire sale. Emotional investors are often driven to buy high, sell low - the opposite of what they should be doing - out of fear.

from Margin Call (2011)
Creator: J. C. Chandor
Distributor: Lionsgate
Posted by Charity-Joy Acchiardo
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