The financial landscape has undergone seismic shifts, thanks in no small part to the rigorous work of academic scholars who challenged long-standing norms of investing. “Tune Out The Noise,” a new documentary directed by the acclaimed Errol Morris, delves into this transformative era. It’s not just another film; it’s an expose that brings to light the underpinnings of a financial revolution initiated in the mid-20th century. By showcasing titans of financial academia like Eugene Fama and Robert Merton, Morris captures the intellectual groundwork that laid the foundation for passive investing. Their research shifted the paradigm from the excitement of stock picking to the more rational and lucrative realm of low-cost, passive strategies—a reality that many investors still struggle to grasp.
The Rise of Dimensional Fund Advisors
At the heart of this documentary lies Dimensional Fund Advisors (DFA), a firm that emerged from these academic insights and now manages a staggering $700 billion in assets. Co-founder David Booth, featured prominently in the film, embodies the conviction that the democratization of investing has significantly improved the playing field for average investors. He claims, “People are getting a much better deal now than when I started in 1971.” This assertion deserves scrutiny; while the reduction in fees is commendable, the dark underbelly of passive investing—index fund cash flow chasing and market distortions—remains largely unexamined.
Unraveling the Illusion of Intuition
One of the film’s key themes is the stark contrast between market realities and popular perceptions. Booth’s insight that “it’s really about how markets work and how different that is from people’s intuition or perception” exposes a fundamental cognitive dissonance among many investors. The implication here is provocative: by following their intuitions, investors often sabotage their own financial growth. The documentary compels viewers to confront the uncomfortable truth that emotional decision-making can lead to disastrous results, yet how many individuals truly have the discipline to overcome their innate biases?
The Vanguard Connection
Moreover, it’s essential to highlight the role of other companies like Vanguard, which have adopted similar academic principles to cultivate their investment vehicles. This collaborative evolution among finance academics and investment firms seems noble at first glance. However, it begs the question: does a focus on passive investing allow firms to dodge accountability? With the rising popularity of index-based investing, can we genuinely trust that these entities are acting in the best interest of the investors they serve? The documentary intimates that while costs have decreased, the inherent risks associated with the over-reliance on passive strategies suggest a need for a more nuanced approach to investing.
A Filmmaker’s Purpose
Morris’ intentions in creating “Tune Out The Noise” transcend mere documentation; he seeks to narrate stories that prompt critical dialogue. He claims that one of the reasons he pursued a career in documentary filmmaking is his desire to “hear people telling stories.” This self-reflection raises an important point about the responsibility of filmmakers. They must not only share impactful narratives but also challenge prevailing notions. In that vein, Morris’ work serves as a reminder that understanding finance is not just about numbers. It’s about the stories—the triumphs, failures, and the biases that linger unexamined in our financial decisions. Thus, while “Tune Out The Noise” offers a celebration of progress, it simultaneously urges us to critically engage with the consequences of this new financial ethos.