6 lessons from The Wolf of Wall Street

Morningstar provides some important lessons from Jordan Belfort himself.
By Larissa Fernand |  29-01-14 | 
 
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About the Author
Larissa Fernand is an Investment Specialist. Follow her on Twitter @larissafernand

The Wolf of Wall Street has been creating quite a buzz. Nor surprisingly. It is a fast-paced, powerful and aggressive movie based on the real life exploits of Jordan Belfort, and played brilliantly by Leonardo DiCaprio.

It tells the story of a convicted white-collar criminal who rode high on drugs, money and women. Belfort used his brokerage firm to swindle investors through a combination of securities fraud, market manipulation and money laundering. While the movie does not venture to portray the millions of victims, it did appear that the ending was an insult to them – when the real Belfort – now a motivational speaker and author, actually makes an appearance and introduces his muse, so to speak, on stage for a final scene.

But beneath all the debauchery, decadence, and, of course, rampant obscenities, there are plenty of lessons to be learnt – ethical, moral and financial.

A few years ago, Belfort visited Australia to speak to a diverse range of groups, including Morningstar Australia. They carried a piece on his advice – straight from the horse’s mouth. Reproduced below are the 'Wolf of Wall Street's' top six signs that you're dealing with a financial adviser or broker who is less than forthright. But before we get to that, here's what he had to say about the regulator.

Belfort: Bernie Madoff came about because of a complete and utter breakdown of the regulatory system.

The SEC (Securities and Exchange Commission) sees people as insiders or outsiders. They saw Bernie Madoff as an insider.

I think the SEC is an agency that has seen better days and should be completely eliminated. I don't mean the function should be eliminated - I think the agency itself is just all wrong. It's understaffed and under-capitalised. It needs to be dismantled and rolled into a more effective government agency.

In the Stratton Oakmont days, the SEC sent four teams of investigators to Stratton Oakmont in two years. It was beyond ridiculous. They were kids. They'd come in and they knew nothing about the securities business.

I was a crook back then, and went to great lengths to make my activities appear legitimate. How is a kid supposed to sort all that out? We'd give them tens, hundreds of thousands of trading tickets, and while they were busy looking for the smoking gun, we were firing live bazookas under their noses.

1. No-name, small-time operators are suspect

Belfort: First of all, I would never give my money to a no-name brokerage firm or a financial adviser who was not affiliated with a major company. I'm not saying there aren't crooks in big companies, but to go with someone on the basis of a phone call or someone who's operating from a business that's very recent, you're taking a huge risk. That, alone, is a tell-tale sign.

2. They provide their own referrals

Belfort: Do not look to get one referral or two. Before you give someone a cent, you have to check them out thoroughly. Get character references.

3. Information or research about the company is thin

Belfort: It's up to you to do the research. If someone out there is conducting their business well, it's not a secret. You can find it, you can double-check it, and you can prove it. Then, you can check it again with authorities.

If someone's got a scheme or an investment model that doesn't quite make sense, you can't quite prove it but everyone's doing well with it - it's bull.

If they have even a partially shady reputation, run the other way.

4. They try to convince you to compromise your ethics, however slightly

Belfort: When it comes to money, there's no in-between. Either you're lily white, or you're not. If you cross the line once, you get a taste for it. You can't say: "Oh, I'll make my money and then I'll become a pillar of society." It doesn't work that way.

I didn't start out ethically bankrupt. I sold my soul a little bit at a time. I crossed over to the dark side through a series of tiny imperceptible steps.

5. They tell you they only offer their services to a select group of people

Belfort: Bernie Madoff relied on the oldest hustle of all, which is: "My club is so exclusive - you want to be a member." And it worked. He was a classic con man.

You wanted to be in Bernie's club and if you weren't in Bernie's club, you were "less than". People clamoured to give their money to Bernie Madoff. If you asked questions, he said: "No, no - take your money back."

6. They present an investment scheme that sounds too good to be true

Belfort: We all want to believe that there's something out there that's better than reality, that there's a fast way, an easy way, that there's something that's too good to be true. There is nothing that's too good to be true.

We were talking about Bernie Madoff. You give your money to Bernie and you get this amazing return year after year, in up-markets and down-markets. Bernie was a very clever crook and he played on the system like no one's played it before.

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Larissa Fernand
Feb 25 2014 06:52 AM
 Dear Supriya,
Let me first say thanks for taking the time and making the effort to comment. I sincerely do appreciate it.
The reason I decided to carry this piece is because I felt Belfort knew the mindset of the people that he successfully swindled. And him conveying it would help others from finding themselves in that position and prevent them from being carried away. That was the purpose of this article.

Having said that, am not trying to justify him or put him in a better light. You are right. The guy was a cheat and a swindler with complete lack of scruples.

Once again,
Thanks for writing in.
Sincerely,
Larissa
Sripriya Rangamani
Feb 6 2014 05:21 PM
 Not too sure what this article is trying to convey, especially coming from a person who did all the fraud and cheating.

It is like trying to get advice to children from a pedophile.

Whilst the advice is good, the entire thing coming out a fraud's mouth is totally repugnant.
Larissa Fernand
Jan 31 2014 09:23 AM
 Dear Maxie,
I am sorry if that is the impression the entire piece conveyed, but it was not intentional.
Like I wrote, whatever advice stated here was what Belfort gave when he spoke to my colleagues in Australia. It has been reproduced verbatim - straight from the horse’s mouth.
He himself said in point 1 - "I'm not saying there aren't crooks in big companies, but to go with someone on the basis of a phone call or someone who's operating from a business that's very recent, you're taking a huge risk."
I hope this clears the air.
Sincerely,
Larissa
Sunil Hareendran
Jan 30 2014 07:23 PM
 So true, investing is a long drawn process with fundamentals. Taking short cuts will only spiral into the abyss
Jitendra Chawla
Jan 30 2014 09:41 AM
 another good one editor! Keep it up...
Maxie Jose
Jan 30 2014 09:40 AM
 While I find the story and the idea great, it is really concerning that you have put all small advisors in the suspect category. Going by the recent history, its been all big names which have been in news for wrong reasons (globally). This has not only created a mess for investors but discredited the industry. I would like to reiterate what you mention - character and ethics is something you have or you don't. I would opine that the size is not at all germane.
Ankita Awasthi
Jan 29 2014 03:47 PM
 This is a gem of an idea to explain things!! Great article!
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