Investment Analyst Explains: Boiler Room

this video is sponsored by blinkist visit the link in the description below for seven days free plus 25 off the annual premium membership which with blankets connect gives you two for one account access ladies and gentlemen welcome to the plain bagel I'm your host Richard coffin we are back once again with another movie review uh this time sticking with the theme of Finance movies that involve scamming people which seems to be a pretty popular category we are going over the movie Boiler Room a film quite literally named after a type of scam this was a highly requested one and admittedly the plot is pretty similar to movies we've already talked about on the channel including Wall Street and the Wolf of Wall Street but there's actually a reason for that which is that this movie was in part inspired by Wall Street and itself was inspiration for different scenes of The Wolf of Wall Street which we'll highlight throughout the video but what I like about this movie compared to the others is that it does a good job humanizing the victims of this scam which I think movies like The Wolf of Wall Street kind of skim over the film follows Seth Davis a College Dropout who gets a job for a not so ethical brokerage firm and it kind of follows a struggle as Seth both becomes better at being a high pressure salesman while at the same time learning more and more about how his company is actually making money and actually hurting people I will say this movie definitely isn't as confusing as some of the other ones it's pretty easy to follow the plot even if you don't have any kind of Finance background but there are still some terms that come up that they don't necessarily explain so I want to take some time to walk through those and explain whatever Finance Concepts do come up now we'll hit the ground running by explaining what a boiler room scam is it's something that makes an appearance in The Wolf of Wall Street as well but at a high level it refers to a call center style of operation that cold calls investors and uses high pressure sales tactics to try and sell questionable and speculative Investments if not actually fraudulent stocks Brokers will either stretch the truth omit important details or just straight up lie to sell these Investments and because they are typically you know poor quality or project they end up losing people a lot of money while Brokers walk away making a good commission for themselves now in my Wolf of Wall Street video I explained that this term comes from the idea that these operations will typically be tucked away in some non-descript location such as the Boiler Room of a corporate building to avoid drawing any attention I also got a bunch of comments of people saying that it's because it's it involves high pressure sales tactics like I guess a boiler uses so there you go it's one of those two things jumping into the film the movie begins with Seth giving a sort of monologue about the craziness to come and talking about the times that we find ourselves in this movie for your reference was released in the year 2000 so really at the height of the.com bubble where people were making crazy money around internet companies uh and for reference the NASDAQ which is focused more on it companies was up 85.6 in 1999 alone so it was a good time to be a stockbroker especially one that would scam people after this preview we jumped to three months earlier where Seth is running an illegal Casino out of his house for college students at which point his friend drops by with his co-worker Greg who is seemingly very wealthy drives a Lamborghini and is dropping a lot of cash at Seth's Table after having to follow up with his father who is a New York judge if we're running this illegal casino and lying about dropping out of college Greg offers Seth a job opportunity to come work under him at JT Marlin a stockbroker so Seth interested in Greg's wealth and looking to impress his father Dives in and at this group interview we get a taste of what the culture of the firm is like you know high focus on sales and and hustling and Ben Affleck's character Jim the interviewer explicitly promises people that they will become millionaires if they put in the time and effort become an employee of this firm you will make your first million within three years but also says this kind of interesting thing we want winners here not pikers a walks at the Bell asked how much vacation time you get in the first year now the turnpiker has already been said in this film and it comes up again throughout the movie and I had to look up what it meant because I actually wasn't aware of it myself according to the Oxford dictionary it refers to someone who only makes small bets and I suppose in the world of brokerages it is an insult it's belittling someone basically calling them a wimp someone who's not willing to go all in on a trade or make big bets and what's interesting is that this term allegedly has a really Niche origin it supposedly comes from the Gold Rush when people on their way to go in mine gold would stop by Pike County in Missouri and people from Pike County were known as pikers and were seen as being Frugal and not willing to spend money on gambling and booze a unique origin of true but not something I've come across myself I've been fortunate not to work at a place like this so that's good it's also during this group interview that Seth and the others are told that they'll need to work under a broker as a trainee for some time and write their Series 7 Exam which as we've talked about before is General brokerage licensing exam in the US that lets you buy and sell Securities on behalf of a client before you are licensed you can only really do anything if you have the oversight and authorization of a licensed broker and on Seth's first day he shows up and Greg who will be the license broker who he works under gives them a rundown of how things are going to work first he tells Seth that he's going to be cold calling potential investors and he shows up with what he calls DNB cards so this is the DNB cards these are our leads now fun fact DNB refers to Dunn in Bradstreet which is a commercial data firm that sells contact information for potential investors to companies and in the scene Greg makes it very clear that Seth is going to be a Salesman rather than a respectable Finance professional in fact even references the movie Glengarry Glenn Ross do you see Glenn Gary Glen Ross yeah okay do you remember ABC yeah always be closing that's right which if you don't know is a very famous movie that's all about aggressive sales tactics and the sort of Dog Eat Dog mentality around business Greg also tells Seth don't write wood which very quickly just means not getting buy-in from a potential lead before you hang up the call saying that you'll follow up but not really getting their interest so that when someone does eventually follow up it's a dead lead it doesn't lead anywhere and it just kind of wastes everyone's time and Greg even tells Seth to explicitly lie to clients in order to get that investment tell them that you're the executive of the business lie about the promise of this firm whatever needs to be said to secure the deal so yeah we get a Vibe about the work culture here it's not a good one so even before diving into the worst of of what's happening at this company uh you can see it it's off to a rough start now after a few days of working Seth joins the other Brokers for a night at Greg's house where they're all watching the movie Wall Street and they're actually quoting the Gordon gecko scene where we first see Gordon Gekko come on screen you can watch my Wall Street video if you want more details on that movie but that film Wall Street that they're watching is actually well known for convincing a lot of people to become Brokers which again is pretty concerning kind of as highlighted here because Garden Gekko is a criminal he makes his money through insider trading and you can see that these Brokers have really glorified this person which is quite telling and on the know of inspiration in the following scene we see Seth find his first interested client which he passes off to Vin Diesel's character Chris and we get a scene that might remind you of another film to Jacobs this is Chris Marlin over at JT Marlin Marlin right he's hold on let me open up the door to my office [Applause] so as you can see Wolf of Wall Street very much influenced by this film you can even hear the Brokers doing the sort of gorilla change in the background and while nothing else apparently raised the alarm bells for Seth this is a scene where he starts to get a little suspicious about what's going on as Vin Diesel explains how him and the other Brokers make so much money from the trades they carry out a two dollar rip it means that we're walking away with two dollars every share we sell Seth doesn't really understand how the company can pay its Brokers such a high commission or rip uh per trade that they do and later on as a few of the Brokers go to a bar and get into an altercation with JP Morgan Brokers we hear JT Marlin being called a chop shop now the conventional term here refers to a body shop that takes in stolen cars and takes them apart to sell the parts separately but in the context of brokerages my understanding is that it refers to people who use high pressure sales tactics and cold calling to sell Investments so not really respectable operations in the brokered sphere and as we learned from this point onwards that's the least illegal thing this company is doing Seth starts to see a bunch of weird things he notices the compliance officer late at night shredding a bunch of documents at the office he later sees the company's owner Michael and the compliance officer talking and hanging out around the office buildings and in doing some snooping he sees that the prospectus documents or what needs to be filed for a stock to IPO so that public investors can buy it he sees that some of these inspectus documents list the same private Equity sources meaning essentially that the stocks of this company is ipoing the initial public offering and selling to investors a bunch of them are owned privately by the same group of people which is is a pretty big red flag and it's something that we see the Securities Exchange Commission pick up on having Seth monitored and even tapping his girlfriend secretary at JT Marlin to be an informant in this case so clearly some sort of fraud is happening here and you would think it'd be enough to convince Seth that this isn't worth going down this path but you'd be wrong because this is actually the point of the film where we meet Harry one of the leads that Seth manages to sell stocks to and through Harry we see the impact of this fraudulent activity on this person's life as he goes from someone interested and excited about a stock to losing everything and again throughout this film we see a lot of this internal tug of war where Seth wants to just ignore everything and make a bunch of money make a killing and not worry about the implications but it's just too curious and ends up continuing his with Seth later again seeing the owner Michael and the compliance officer in the building next door to their brokerage with a complete new setup for the brokers in case quote the heat comes and we have to jump and finally after visiting one of the offices for the stocks that JT Marlin is peddling onto investors Seth pieces together everything that's going on and explains it all to his girlfriend Michael appears to be creating fraudulent companies with no real operations using friends of his as Bridge financing basically allowing them to become private owners of this fake company using JT Marlin to IPO this company and having the Brokers of JT Marlin sell stocks of these companies at the IPO to public investors offloading it to them and pumping up the price and then Michael and his friends are selling their positions the stock is crashing and investors are losing all their money so that's it the cat's out of the bag we know everything that's going on here and then Seth should have enough now to know that he should probably stop working for JT Marlin at a minimum but No in fact the next scene we see Seth further screwing over Harry that interested client we follow throughout the film by convincing him to put his family's house down payment into the stock that he sold him that's Fallen because it's cheaper now and it's it's a bigger opportunity than ever before and it really takes seeing this client Harry lose over 80 percent of his investment on this stock and a Folly note with Greg for Seth to realize that he needs to leave this position but even then he decides he's going to scam JT Marlin out of a few hundred thousand dollars on his way out the door which he doesn't get a chance to do right away because he gets intercepted by the SEC who cut a deal with him offer him immunity if he collects a bunch of dirt on JT Merlin and the next scene we see Seth's final day at JT Marlin well everyone's last day at JT Marlin collecting this data but also doing this sort of side plot to try and earn Harry's money back he can't get a hold of this client but he convinces the owner to let Harry in on the next IPO and then tells Chris everything that's going on how the company is about to be rated and asks him to sign a sell order that the company normally wouldn't allow so that Harry can walk away with a neat profit before the company dumps its next fraudulent stock and yeah the movie ends with Seth leaving the office as the authorities come to raid the building and that's a movie like I mentioned not as complicated as some of the other plots we've covered but a lot of parallels with these other films and still seen as a relatively influential movie given how it has inspired The Wolf of Wall Street in a number of ways before I sign off I do want to give a quick thank you to the sponsor of today's video blinkist If this movie inspired you to become a broker I hope you didn't but but if you want to become a financial professional you'll come to learn that reading's a very important part of the job but for myself well there is a list of books that I make sure to get through there are a vast number of titles that I'll never have the chance to go from front to back which is why I like blinkis it's a service that summarizes non-fiction books that you can either read or listen to the summaries and typically under 15 minutes for example this year I've been really interested in becoming a better writer and learning more about the history of the stock market and on the topic of investors losing money one book that I've really liked using blinkist for is Big mistakes a book that talks about famous investors and some of their worst Investments and the the key takeaways we can have from those the first link in Investments methods and techniques are useful but not infallible it actually talks about Benjamin Graham the father of value investing who during the Great Depression actually lost 70 percent of his portfolio's value by focusing on cheap stocks that kept getting cheaper but the books aren't just on finance and investing they cover a bunch of different categories and in fact I quite like using them for covering the areas that I might not get to otherwise and the best part is this new feature they have blinkist connect where you can share your own premium subscription with one of your friends so it's essentially a two-for-one deal you pay for one subscription get two accounts it's a great service if you want to try it out yourself you can visit the link in the description below to get a seven day free trial plus 25 off the premium membership so thank you blinkus and thank you guys for joining me today I hope you enjoyed this video if you did please do make sure to like subscribe all that good stuff it does help the channel tremendously and let me know if there's another movie or piece of media that you would like me to review on the channel these are fun so thank you for joining me we'll see in the next one

Channel: The Plain Bagel

Views: 110,063

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Id: 0EumYORswPo

Length: 14min 23sec (863 seconds)

Published: Fri Apr 28 2023