Merry Christmas, my friends! Today is light-hearted… let’s consider the popular Christmas movie “It’s A Wonderful Life” because, curiously, it reflects multiple sides of the Self-Directed Investor… and reveals a path to the merger of happiness and wealth that’s not actually achieved by any of the characters in the movie. I’m Bryan Ellis. This is a special CHRISTMAS EDITION… Episode #175.

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Hello, SDI Nation! Welcome to the podcast of record for savvy self-directed investors like you!

Merry Christmas, my friends! And Happy Holidays to you folks who celebrate something else.

My lovely wife Carole has long loved the classic Christmas movie “It’s a Wonderful Life”, in which the good-hearted George Bailey finds himself in serious trouble on account of some financial carelessness at the Bailey Brothers Building & Loan. This gives an opening to Potter, the very wealthy and very evil villain, to swoop in and take over the Building & Loan and thus own absolutely everything in the little town of Bedford Falls, New York.

I’d never seen the movie before I met Carole, so that’s just another wonderful thing she’s added to my life. But I enjoy that movie from a different perspective: Whereas nearly everybody who has ever seen it seems to think that the hero George Bailey is just a great guy and the villain Potter is a terrible menace, I see things very differently… and this distinction could be useful for all of us as self-directed investors.

Potter is the bad guy in the movie. The first mention of him describes him as “the richest and meanest man in the county”. His demeanor is very gruff and matter of fact. He’s focused on the bottom line. He’s represented as, essentially, a slum lord. He is certainly not perfectly ethical, having chosen to take advantage of a huge mistake by one “Uncle Billy”, George’s Uncle – who, despite his undeniable problem with memory and with keeping appointments, is routinely entrusted with handling large amounts of money and in managing relations with the auditor of the Building & Loan. In fact, the whole conflict of the story comes down to Uncle Billy’s failure to make a very large deposit at Potter’s bank because he instead gloats to Potter and ends up misplacing the money… which Potter finds… and causes substantial legal trouble for the Building and Loan, and more specifically for George Bailey.

So it’s a nice story because George Bailey – who runs the Building & Loan more as a charity than as an actual bank, and makes home mortgage loans on the basis of relationships rather than credit worthiness – well, George gets a chance, on account of a celestial intervention, to see what life would be like had he never been in picture to begin with.

But here’s the part that’s curious to me: Potter, while certainly taking advantage of a very foolish error by Uncle Billy, espouses almost exclusively WISE business principles. For example: He is not in favor of granting loans based solely on personal relationships. He is not in favor of allowing non-paying borrowers to continue non-payment without facing foreclosure. He makes a very obvious… and not at all irrational… attempt at overtaking the Bailey Brothers Building & Loan when there is a mysterious run on the bank on the day of George’s wedding to Mary, and the planned departure day for their honeymoon. He is very brusk and very focused on the bottom line.

All of this earns him the reputation of being EVIL, not wise. Now who knows… maybe his rental properties actually are slums. That’s never clarified… but there’s a clear mob mentality at work against him from some of his tenants.

And then there’s George Bailey. George shows some discipline as a young man, getting a job very early in life, planning his life and career very, very carefully, and saving the money he earns in order to accomplish the specific objectives he’s set out. And along the way, he becomes friends with everybody in town, but his dreams are crushed when he’s forced to use the money he’s saved to provide liquidity to the Building and Loan in order to fend off a run and stop Potter from taking it over.

Now here’s the thing, folks: George Bailey does an absolutely TERRIBLE job as “Executive Secretary” – essentially the CEO – of Baily Brothers Building & Loan. He makes foolish loans to unqualified borrowers. He entrusts his alcoholic and unreliable Uncle Billy to handle large volumes and cash and to interact with bank auditors. He gives out cash and loans without requiring one shred of documentation.

In short, he’s TERRIBLE at his job. He believes social capital to be more relevant in financial transactions than actual capital. I’m certain that’s true in a number of individual situations, but it’s no way to run a financial institution.

Bottom line: At the end, all of the people who George has helped along the way come together in a pinch and help George to raise the money he needs to stay out of jail. So it’s a happy ending and the evil Potter is thwarted yet again.

But here are my observations:

• Potter is clearly doing a good job of running his business well. He owns businesses and real estate, and seems squarely focused on the performance of his assets. I find nothing to fault with this approach. We don’t REALLY know if the “slumlord” type of accusation was accurate or just the ranting of emotional tenants… and if you’re a landlord, you know how easy it can be for that to happen.
• George Bailey, while showing financial responsibility personally, is an absolutely terrible business person… among the very worst ever, I’d say. His only skills are building social relationships and in giving stirring speeches to defy the evil Potter. He doesn’t have the sense to remove Uncle Billy from a position of responsibility, even though Uncle Billy clearly is unfit for such a circumstance… and his business and his customers suffered for it.

Honestly, if I had to choose, I’d rather be a more ethical version of Potter rather than a more business savvy version of George Bailey.

Bailey’s failure as a business person is very emblematic of common thinking today, in which the public believes that the purpose of business is to provide jobs, or to serve other social purposes. My friends, that’s hogwash. The purpose of business is to be profitable, otherwise it’s a charity. And it’s fine and good and praiseworthy to support charities. But charity and business are not the same. To confuse the two is a fool’s game. The person who confuses charity with business is the person who will, in every case, be beaten by the person who understands the difference.

But there’s a beautiful opportunity that this story leaves wide open, and that is an option for you and me as Self Directed Investors which is this: Let’s use the business cunning of Potter to create profit – as much of it as we legally and ethically can – and let’s use that profit to do wonderful things for the world.

The most wonderful thing anybody can do is provide well for their own family. Their housing, their nutrition, their clothing, their education… it is a good, it is a wise, it is a noble thing to provide for those whose lives have been entrusted to you.

Beyond that, it is absolutely a good, wise and noble thing to be generous with your blessings. It is, in fact, a necessary thing as well. You can tell a lot about a person by finding out how they spend their money, and by determining the things that they think are optional versus mandatory. For you and me as self-directed investors, using the blessings of profit to strategically benefit those in need is a very good thing – and I believe generosity is the magnet that brings some sort of other-worldly good fortune to financial and other endeavors.

So with that, my friends, I wish you a very, very Merry Christmas.

I hope that during this season, you’ll invest well – by being with the people you love most – and that your lives will be made better forever!

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