Investment Analyst Explains The Wolf of Wall Street

ladies and gentlemen welcome to the plain bagel i'm your host richard coffin we're back with another episode of the the esteemed series investment analyst explains investing references in pop culture episode two i put out a community post asking which movie you guys would like me to review on this channel and the answer was pretty resounding the wolf of wall street a movie that follows the life of jordan belfort a wall street broker that was convicted of securities fraud for making a company that effectively pumped and dumped shares and did a bunch of other stuff it's a movie that since kind of come to define the culture and imagery of subreddits like wall street bets that has given us famous quotes including the one about rookie numbers and that gave us whatever this was [Music] and if you've seen this movie you know that it's a wild ride there's a lot of crazy antics that happen throughout the film and you'd be forgiven for not fully understanding what actually happened from a financial standpoint but between all the drugs the hanky-panky and the other stuff there's actually a lot of financial concepts and even events that occur in this movie that you know might have been hard to catch as a viewer given how fast-paced they are and you know the the drugs inky-pinky and other stuff so today in proper party pooper fashion we're going to learn forget the forget all the exciting stuff we're going to cover some of the concepts and explain what exactly was going on in this film what happened in different scenes um and why jordan belfort went to jail a few things right off the bat firstly i'll have to be a bit creative with how i show the movie clips that i'm referencing because the first installment of the series if you will on the big short was actually demonetized for showing too much of the video even though i was trying to explain what the scenes were so i apologize if the cuts are a bit jarring youtube fix your copyright system and secondly even though a lot of the stuff did allegedly happen from the hookers in the office to the chimpanzee handing out paper to workers to even the people being thrown at targets it is worth keeping in mind that this movie is an adaptation of the book the wolf of wall street which is a memoir written by jordan belfort himself and given that the man is quite literally a convicted con man who by his own admission was on 22 different types of drugs a day is worth taking it with a with a grain of salt it's not to say that crazy stuff hasn't happened on wall street in the past and that wall street hasn't had this crazy culture around it but it is to say that you know some stuff might have been embellished or whatever have you so keep that in mind but regardless let's hop into it and explain what's going on so one of the first scenes is jordan belfort getting a job at lf frost child a stock broker company that uh not associated with the rothschild family but is a real investment company that fun fact actually took the firm intel public and after a day on the job where he's essentially helping brokers find clients that they can sell positions to he goes out for dinner with matthew mcconaughey's character mark hannah who's based on a real person a lot of these characters are based on real people even though sometimes the names are changed such as with jonah hill's character and this is where we're really introduced to the sketchy stuff that's already happening on wall street even before jordan belfort starts his scam marchand explains that as a brokerage company that can buy and sell positions for clients and make recommendations to clients they don't actually care if the client makes money because this firm makes its own money from the transaction fees so every time the client wants to buy or sell a share they're paying one percent of the value of that purchase to this brokerage company so they don't care themselves if the client ends up making money with that position they just want them to keep trading and mark hannah explains how they don't want clients to sell out they want them to keep rolling their money into other in other positions and it's all just a game that they're playing uh and that their clients are suckers basically after the scene we see jordan belfort become a broker himself by finishing his series 7 exam which if you aren't familiar in the us is sort of the registration exam to become a broker and be able to buy and sell different securities for clients it's known as the general securities representative exam and as the name implies it gives you general permission over buying and selling different securities and after this we get to the first kind of confusing scene about black monday where jordan belfort is finally a broker you know has his license and then this catastrophe happens and this is based on a real event october 19th 1987 where basically markets around the world had this sort of flash crash the dow jones industrial average dropped 22.6 in a single day which was its largest single day drop in history and the really interesting thing about black monday is that even to this day we don't fully know what caused it there was negative economic news leading up to this decline there was bad news about a trade deficit concerns about the us dollar strength interest rates were rising markets were already very expensive so obviously there's a lot of room to fall down but it's largely believed that automated computer trading and new derivative products like portfolio insurance basically caused a positive feedback loop in the market where stocks fell a bit computers started you know clicking on and adding more sales to the market which caused things to fall further which caused panic selling which repeated the cycle over and over again to an exaggerated degree an imbalance of market trades was so bad between cells and buys that many positions had their trading halted or delayed because the system simply couldn't handle the activity going on and by today's standards this might not sound all that dramatic but you have to remember that this was one of the first kind of global market crashes where it wasn't just the us that was hit hong kong solid decline australia the uk basically every financial market around the world with even new zealand seeing a one day decline of 60 of its market and for a lot of brokers it was a scary moment to see it wasn't just their country that was seeing a decline it was countries around the world all falling at the same time now this event actually led to some big changes in the us the federal reserve sort of established a reputation as being a market stabilizer it stepped in and added liquidity to the markets and kind of prevented this from turning into a larger economic decline it's also the event that led to the adoption of circuit breakers which are sort of these automatic protocols that kick in place when markets are declining or when there's a vast number of sell orders entering an exchange it kicks in to pause the markets to prevent the sort of positive feedback loop that happened during the 1987 crash so sorry a bit of a tangent but it's an interesting event in the world of finance going back to the movie during the scene we see the company trying to grapple with all these sell orders coming in from clients obviously they're losing clients and then there's a sound of a buzzer going off which at first i thought meant that trading activity had been halted because of how everyone reacts to it but it's actually just signaling the end of the trading day because again this was before circuit breakers had been introduced and funny enough there is actually a shot of a clock at the beginning of the scene that shows that it's 4 p.m which in new york is when markets close for the day so it's just traders realizing markets are done for the day and they're just left in disbelief following this the company ella frost's child actually went bankrupt because of its equity trading business which leaves jordan belfort on his own next in the movie we see jordan belfort getting another job as a broker this time for a less established company investor center and here we are introduced to the pink sheets pink sheets are a real term that refer to over-the-counter stocks usually penny stocks very cheap stocks that really don't meet the requirements to be sold on an exchange it refers to the actual pink piece of paper that the information for these types of stocks are provided on and it's opposed to uh it's even referenced in the movie the quotron which was the digital computer screen that listed the prices um and basically any kind of stock can list over the counter so that's why the vast majority of pink sheets are penny stocks you know unestablished companies that really don't have much value behind them which means many of them are selling their shares for literally pennies hence the name of the type of stock and even though these positions are objectively not as desirable as the blue chip companies that he was selling before you know companies like they mentioned microsoft jordan belfort realizes that on these companies he gets a 50 commission jesus christ the spread on these is huge yeah and that's the point basically half of whatever he sells he gets to keep as commission compared to one percent at the company he worked at earlier because these these positions are so lightly traded which leads him to realize that hey if he can just over sell these to clients you know convince him that these are actually promising startups with huge potential he can make a crapload of money this is where we get into the more explicit scans that jordan starts to run to to make his money and this specifically is known as a boiler room scam where basically a call center is operated where high pressure sales tactics are used and investments are misrepresented just in order to get people to invest into them without the broker themselves disclosing their kind of profit motivations here as for why it's called a boiler room scam my understanding is that it's basically just the image that this kind of scam evokes that these operations are usually run in a boiler room-esque style office if you will in a subset of an actual corporate building to sort of hide you know their tracks investor center for example was actually being run under the front of an accounting company which is why at the beginning of the scene jordan belfort actually has a hard time finding the company regardless he commits to the scam starts peddling crappy companies onto clients and actually shows other brokers how it's done high-tech firm out of the midwest awaiting imminent patent approval during the sip of scam for some time jordan belfort realizes that you know yes he's able to swindle money from sort of less educated investors he decides to open his own shop to try and do the same thing with wealthier clients to convince wealthier clients that he's a legitimate broker to convince high net worth clients to buy crappier positions so he can earn ridiculous commissions on the trades gentlemen welcome to stratton oakmont and right away strand starts getting undesirable attention from the media because of these shady practices that clients are complaining about and there's this part where he talks about forbes coming forward and labeling him the wolf of wall street uh although interestingly that never happened there is a forbes piece where they went after belfort's company and did call him a sort of robin hood that took money from investors and put it in his own pocket they allegedly never called him the wolf of wall street which leads many to believe that he just called himself that which is less less cool anyway outside the boy room scam then we get into the rat hole scheme now a rat hole is a friend like brad here who held stock in his name from me uh now i don't think rat hole is technically a real scam term if you will it might be but i think uh belford might have coined this term but basically just a combination of insider trading uh pumping and dumping and money laundering so in the movie for example they take a company steve madden public which again did actually happen strand oakmont did actually take steve madden public they themselves have a lot of insider information that the market does not have on the stock and belfort could try to you know take advantage of that himself but given that he's the head of this company there's going to be a lot of regulators watching his trade and you know the money he moves around so to avoid that scrutiny he does so through an accomplice brad in this case so then he'll get his brokers to call a bunch of clients and get them to buy this company steve madden and push the price higher and higher which obviously will benefit him and while steve madden is kind of the main example of this it sounds like this happens a bunch throughout the movie where he owns positions secretly uh gets his brokers to pump up the price by getting clients to buy it and then he offloads it through brad uh netting himself a bunch of money all cash none of it's on the books a big no-no of course in the eyes of the law so really those are the illegal things happening in the movie you have the boiler room scam where brokers are over selling uh or misrepresenting the positions that they're selling and pumping and dumping where similarly they get the whole brokerage team to pump up the price of stuff and then belford himself sells his personal stake once the position has been pumped to a really high price hence the dump aspect of that scam there has also been in the movie where he talks about opening a bank in switzerland i think that's more self-explanatory but basically switzerland is kind of known for being a safe haven in some cases for different types of bank accounts because of their neutral status they're very independent with their financial system um and in this case there's also fraud because he forgets the signature and blah blah holds his money through a relative even though it belongs to him and you know then there's like drugs and driving drunk and all the other illegal stuff that happens in the movie but that's a securities related fraud that occurs and really all this stuff is covered in the first half of the movie basically the other half of the movie is is drama the unfolding of all this uh the fbi agents you know finding him out and and then he rats on his other uh brokers because of all these activities jordan belford was charged with securities fraud uh was sentenced to four years in prison and ordered to pay back over a hundred million dollars to the clients he swindled money from even though it's believed that he cost investors 200 million dollars through the schemes here which might lead you to wonder where's jordan bell for today well interestingly he only served 22 months in prison um and these days is a motivational speaker he's run a few sales seminars which they do reference at the end of the movie where they have this kind of easter egg where the real actual jordan belford is shown on screen introducing leonardo dicaprio's jordan belfort for his sales seminar and funny enough after calling bitcoin basically a scam uh he now runs a cryptocurrency seminar old habits die hard so that is the wolf of wall street explained by an investment analyst uh hopefully you found value in this video hopefully i was able to add some interesting bits of information um i know it's probably a bit more dry than the movie itself since there's a lot going on in the film but i hope you enjoyed the video it is an interesting movie far from the experience i've had my uh investment life is a lot more boring but for sure wall street is known for having a toxic work culture and for at times having crazy things happen in offices and whatnot so it's not all that far-fetched if you like this video please do make sure to like and subscribe and let me know your favorite part of the wolf of wall street movie as well as any other movie that you'd like me to um ruin thanks for joining me today we'll see in the next one stay safe out there

Channel: The Plain Bagel

Views: 445,700

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Id: rHLZKpXvmFk

Length: 14min 5sec (845 seconds)

Published: Fri Aug 19 2022