By the time the 10th person asked me if I had seen The Wolf of Wall Street I knew I had to go. I’m guessing that I kept getting asked because I work in financial services and people automatically assume there is some kind of connection between professional wealth management and Wall Street brokers. (Will someone in the press or financial media educate the public about the difference between a certified financial planner and a broker?) So off I went.
Say what you will about the flick about former stockbroker Jordan Belfort. It has no moral compass. It glorifies drugs and prostitution. Martin Scorsese shows no compassion for the victims. But just as Marty leaves us to take in the experience and decide on our own what to feel, Wolf had a few lessons after all.
Stock Picking Doesn’t Work
“Nobody knows if a stock is going up, down, sideways or in circles. You know what a fugazi is? It’s a fake.” — Mark Hanna
This would be the first big lesson from the head broker to the wolf-in-training. Most stockbrokers know that picking stocks and forecasting their short-term movements is a loser’s game. But when a professional’s compensation comes in the form of commissions for each transaction, you’re paying that person for executing trades, not for what he earns for you. In fact, the more he trades for you, the less money you earn.
Greed Is Bad
“The year I turned 26, I made $49 million dollars, which really pissed me off because it was three shy of a million a week.” — Jordan Belfort
While my OCD side can identify with the desire to have such a nice sounding weekly income figure, I think it’s safe to say that money didn’t buy happiness for Jordan. Last month, right when people were taking in the great returns of 2013 and the talk of another good year ahead, I noticed a spike in incoming client phone calls. I was hoping they were calling to share a life event or to make sure we were rebalancing their accounts (selling the best performing assets to buy whatever didn’t fare well in 2013). Nope. They were wondering if it was a good time to increase their exposure to stocks because “it felt like they were going to continue rising.” How quickly we forget that stock prices reflect all known information and that our sentiments about the markets are rarely a good barometer of what’s coming next.
Education Is Good
I am assuming that many of Jordan’s victims were good, honest people just trying to provide for their families, and that they were uneducated about investing. Most of us devote more time trying to save hundreds of dollars on a vacation than we devote to investment education that might save us thousands of dollars or more. One of my heroes, Wall Street veteran Gordon Murray (rest in peace, good man), wrote what is perhaps the simplest and most direct book about investing: The Investment Answer. Read it even if you already have a trusted financial advisor. You’ll ask better questions at your next portfolio review meeting.
Did I like the movie? Since I’m a fee-only financial planner and don’t condone the actions I witnessed in the film, I plead the fifth.
Happy investing.
