Why investing in Broadway or Off Broadway is better than investing in the stock market.
Whenever you are selling anything . . . from tickets, to why a star should sign on to your show, to a vacuum, you have to remember that you’re never selling IN a vacuum.
There is always something that your “consumer” could buy instead. They could always get tickets to another show (or, God forbid, a movie). The star could always sign on to another show (or, God forbid, a movie). And they could always get a Swiffer (or, God forbid, they could just leave their apartment a mess and go to the movies.)
You not only have to sell why your product is worth whatever price they are paying, you also have to sell why your product is better than the other products that are out there.
For example, when raising money, one of the common questions that I always have to be ready for (and one that you should be ready for when you start raising money) is, “Why should I throw money into such a high risk venture when I could throw it in the stock market instead?”
Hmmm, good question, right? Actually it’s a great question.
There are of course a bunch of reasons why someone would invest in the theater as opposed to the market: opening night tickets, high risk but big upside potential, house seats, billing, potential tax write off, or just because they believe in you.
But most of those are indirect comparisons. When you’re selling stuff, you need to find direct comparisons between the competition, like . . .
Yes, investing in the market is safer, without a doubt. And you should encourage your investors to do so, to create the most diversified portfolio possible.
But when you buy a stock, you not only have to know when to buy . . . you also have to know when to sell. Stocks go up, but they also come down. You could invest in a blue chip a year ago that everyone was recommending and a year later it could post almost a 10 billion dollar loss. And no matter how much your stock went up over the last year, if you didn’t get out in time, you lose. You may have made a smart decision a year ago, but if you’re not a expert market watcher, then you could end up with a tax-write off anyway.
Here’s the thing about shows . . . once they get over that humungo hurdle and actually recoup, they never go the other direction. Once you’ve got a winner, you’ve got a winner, and your gains only increase. Sure, the gains may be small, or they may slow down when the Broadway show closes and when your show is only being done in high schools, but you never have to worry about selling. Returns diminish, but never reverse (barring some sort of extreme circumstance like litigation).
When you buy a stock, you have to be smart twice. When you buy Broadway, the pressure is on only once.
Ok, that’s not true. You also have to figure out what to wear to the opening night party. (And there’s another reason why people invest in the theater instead of the market – you don’t see Citigroup throwing parties for investors when they buy 100 shares, do you?)
Would the traders at Goldman Sachs punch holes in the above theory and find direct comparisons of their own to prove why investing in the market is better than a musical? Probably.
That’s just as much their job as it is yours.
Then again, they were also recommending Citigroup last year.
So don’t sell in a vacuum.
(Insert your own Davenport-style “sucking” reference here)