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This past weekend, I saw the newest Martin Scorsese and Leonardo DiCaprio blockbuster, The Wolf of Wall Street. The film is based on the self-told tale of Jordan Belfort, who makes a fortune scamming greedy investors who are bored with investing in "slow moving" giants like Disney (NYSE: DIS ) and PepsiCo (NYSE: PEP ) , selling them instead on the huge upside potential of penny stock "shell" companies.
While the movie was entertaining, and even fun for a Wall Street junkie like myself, I walked away wishing it hadn't been made. Sure it was entertaining, but at a pretty large cost.
My Beef with The Wolf of Wall Street
When it comes to the topic of Wall Street, movie goers want to see greed, drugs, and lots of bravado. I get it, and as much as I'd like to see Peter Lynch's One Up on Wall Street turned into a film, starring Steve Martin as Lynch, I know that's not going to happen. Boring wealth is boring, and that's ok.
Yet if you view this film, and every recent Wall Street film, through the lens of the average film goer, the general impression is that all investing is a scam. That couldn't be further from the truth.
The tragedy of Jordan Belfort: pump-and-dump was never necessary
The most ironic aspect of this film is how much better off Belfort's victims would've been by sticking with the "lame" investments that he scared them out of. Even when he started hunting "whale investors," for his pump-and-dump schemes, he'd lure them in with some steady gains on stocks like Disney and PepsiCo before selling them on "get rich quick" shells.
Yet those same investors would have made an absolute killing by sticking with the same blue-chip stocks that weren't sexy enough for them. This poignant message was completely skipped, which is a bit of a shame.
Since Belfort's time, Disney and Pepsi have doubled in value over 12 and 10 times, respectively.
These values represent the total return of both stocks, which includes dividends, yet they don't even include the additional funds obtained by reinvesting your dividends. To earn a 10-fold investment you didn't need to know any "secrets," or have "connections" -- they succeeded because they were a secret to no one.
And that's the point, you knew about these stocks because you bought their products, and so did everyone else. Check out this chart, which illustrates how clearly increased demand for their products grew in lock step with their stock prices.
You succeeded with these stocks if you followed Peter Lynch's advice to "buy what you know," and hold on. The fact that these stocks offered great dividends, and seemed safe, made them easier to hold for the long term.
So why did anyone ever need a get rich quick scheme?
Why did so many 'smart' investors fall for Belfort's scam?
To put it simply, a fundamental lack of patience. The movie makes a point to explain how revolutionary Belfort was, as he was the first person to scam high net-worth investors into a pump-and-dump scheme. I can just see the average stock "newbie" wondering: "if all of these Harvard MBAs got scammed, what chance do I have?"
I hope that isn't a question that you walked away asking. If it is, I'll make you a simple promise today. If you can keep a long-term outlook, and tune out the noise, you will have an edge over most investors, regardless of their pedigree.
The reason the scam worked was due to a lack of patience by investors, which is simply human nature. Belfort's clients had seen the panic of 1987, not unlike the panic we saw in 2008, and they were thinking in terms of months, not decades. How will you react when the next crisis hits, and the Wolves of Wall Street come calling?
Stick to businesses that have few competitors, like Disney's ESPN, and you'll be rewarded, but only if you stay in the game. The one good "take-away" of this film was that we should all be working harder to improve our temperament, and patience.
Can the average movie-goer tell the difference between stocks and scams? No.
From 1928-2013, the stock market has returned over 12% annually. Just think about all of the turmoil that this country (and stocks) have seen in that time! Still, with the memories of 2008 still so fresh, most retail investors have sat out our most recent rally -- they're simply terrified.
Which brings me back to the real tragedy of The Wolf of Wall Street. The average movie-goer leaves this film thinking one of the following two things.
1. I don't trust the stock market, it's all "rigged."
2. I want to be Jordan Belfort .
Calling Belfort a stockbroker is like calling Al Capone a CEO, yet this film never shows you the real, wealth-building effects, of owning great businesses for years. It will only attract the worst people to Wall Street, while also scaring honest people out of the single best wealth generator of our time. Excuse me if I don't line up to applaud the shock-value.
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