The Wolf of Wall Street and What It Means for Today’s Investors

Today’s guest post is by WalekPeppercommers Chris Gillick and Dmitriy Ioselevich and their conversation about The Wolf of Wall Street. Below is Part I; Part 2 will run tomorrow.

9383f339-2aee-4808-bb8c-c5a674e7f17d_GAL_Wolf_of_Wall_StreetChris: I giddily read Beflort’s book when it first came out and I had very high expectations for this movie, in part because I feel personally connected to the story. I grew up less than 5 miles from where Belfort and his brokers plied their craft at Stratton Oakmont, so this was all going on in my backyard. I was only 10 years old when Belfort first gained notoriety in a Forbes article. Back then Wall Street and the stock market were very much embedded into the local culture. The market was a favorite topic of conversation at Sunday dinners at my grandparents’ house. The daily moves of the stock market actually used to mean something among everyday Americans.

It was also a lot easier to operate a Stratton Oakmont back then. There was no Google or even Internet, so it was difficult to quickly verify what a broker was selling you over the phone. There was no cheap online stock trading platform where individuals could trade and invest on their own. If you wanted to own a stock, you needed a human broker to call and place a trade through. And since the market kept going up and up for a good stretch of the 80’s and the entirety of the 90’s, everybody wanted in. For the brokers doing the cold calls, it was actually a pretty easy sell.

Dmitriy: I’m not quite sure what to take away from this movie. That you shouldn’t trust anybody in finance? That’s a tired line and, although it fits nicely into the current socio-economic discussion, it’s not necessarily accurate. Belfort and his minions certainly deserve their share of the blame for defrauding investors, but it’s important to remember that they didn’t just steal money right out of people’s hands. Their customers willingly agreed to give them money!

You mentioned how easy it was for brokers to sell stocks during the 80s and 90s bull market, but how come investors didn’t know any better? The average American will spend maybe a year picking out the right house and several months selecting a car. But when it comes to forking over thousands of dollars to a complete stranger, they’re suddenly able to make a split second decision? That completely befuddles me.

The sad part is that this stuff still happens today, even with access to so many resources. Just look at Bernie Madoff’s Ponzi scheme. Look at SAC Capital. Look at JPMorgan Chase. People will fall for anything if somebody tells them they can make money off of it.

So how do we fix this? Who should bear the brunt of the responsibility for properly educating investors? Financial institutions? Schools? The media? Investors themselves?

Chris: The ultimate responsibility lies on the part of the individual. Investing one’s own earned money into anything (stocks, bonds, peer-to-peer lending, a local bar, a franchise restaurant, etc.) is entirely optional. The downside of not investing one’s money though, is that if you don’t, it either sits in the bank earning less than 1% a year, or is stuffed under your mattress earning 0% a year. But unlike 20 years ago, there are so many more free resources and websites available to individuals to teach themselves about investing. Yahoo! Finance, The Motley Fool, Investopedia, etc. it’s all out there for everyone to see.

As for Belfort’s victims, the money they lost is their own fault.  They could have easily said “not interested”, hung up the phone, and gone about their business. But they didn’t. At the same time, all humans enjoy gambling and being tipped off to seemingly exclusive investment opportunities. The brokers working the phones at Stratton Oakmont simply catered to those human urges (while high on every drug imaginable, as Scorcese would have us believe). Brokers were able to get gullible investors to believe “Oh, if this event happens, I’ll be $100K richer!” But if that poor schmuck on the other end of the phone didn’t lose $100K on a crappy stock, he or she could have easily lost it some place else—in a bad real estate deal, or at the casino, or in any other failed business venture. Humans have had to take risks to survive over thousands of years, and the stock market, then and now, is just another way to express that need to take risks.

Check back tomorrow for Part II.

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