In Martin Scorsese’s black comedy The Wolf of Wall Street, Leonardo DiCaprio plays the ambitious and bull-headed stockbroker Jordan Belfort, whose fall from grace at the hands of the US Securities and Exchange Commission and the Federal Bureau of Investigation is as sensational as it is stunning. In The Big Short, another Wall Street flick, Christian Bale plays Michael Burry, one of the few investors who predicted the housing market collapse in 2008. Outsmarting the entire financial industry, Burry shorts — that is, bets against — the housing market and emerges billions of dollars richer.
However excessive the character or plot, if you’re like me, there is something undeniably attractive and glamourous about Hollywood’s portrayal of Wall Street and the world of investing.
Among Hollywood’s idiosyncrasies is a fascination for the high stakes world of investing, finance, and stocks. Many people’s first exposure to investing is through movies, where a gifted stockbroker outsmarts competitors, or where stereotypes of excess, wealth, and power manifest to create complex characters and dramatic storylines. Despite being portrayed as morally flawed or corrupt, these characters, often based on real people, enjoy the finest luxuries, and seem fearless in the face of their demise.
Let this article serve as advice to those among you who fancy yourselves the next Wolf of Wall Street. While it might be possible to extract solid investing advice from Hollywood, remaining tethered to reality is still of the utmost importance. Here are a few things you should take away from the movies that spark the investing fire in all of us.
First, you do not need to have a lot of money to start. In fact, investing small, controlled amounts at a time should be your goal. The old adage ‘time is money’ holds more weight when a trade is worth a million dollars, rather than a couple hundred. Opening up a brokerage account at your local bank and putting in even a tiny amount of money is a massive step in the right direction.
Investing is only supremely lucrative for a handful of people. The reality is that investing should be used as a tool to supplement your savings — you shouldn’t be risking everything on penny stocks, or expect investing to be your main source of income. If you pay attention, ‘the Wolf’ himself hardly invests large amounts of his own money in the stock market. He values only his commission because he knows that keeping complete faith in the market is nearsighted and foolish. Don’t take on unnecessary risk while looking for large rewards. Be frugal.
Second, be cool and be patient. Hollywood tends to fast-track the archetypal rags to riches story. Unless you give up your life and become a day trader, investing is about playing the long game and being incredibly patient with your earnings. In The Big Short, the protagonists were forced to be patient with their position, as banks around them fraudulently manipulated the state of the collapsing market to save their own money.
Basic investing lingo makes use of ‘buy,’ ‘hold,’ and ‘sell’ as indicators for stocks. Oftentimes, the most important move you’ll make will be to not do anything at all. Holding firm in your position and being patient, however hard it may seem, is the name of the game. Yours truly has too often seen a few bad quarters and sold early. The important thing to realize is that stocks can recover just as quickly as they can fall, and that no decision should be made on impulse or little evidence. Stay informed and be patient: don’t let huge profits or huge losses get to your head.
Finally, do not underestimate the amount of time you’ll need to put in to actually see success. Unless you are prepared to monitor your portfolio every day and keep tabs on a specific industry every minute of every day, stay away from small to medium-cap stocks. Invest in large companies that exhibit steady and patient growth, and don’t try to pounce on emerging markets like weed or tech without doing exhaustive and thorough research.
On film, stockbrokers are seen as either completely reliant on their gut, or on research and algorithms — like Bradley Cooper’s character in Limitless. The reality is somewhere in between. There will always be two sides to every decision or trade you make, but there should be no limit to the amount of research behind every decision. Put in the effort to look at every possible source of information. This may end up taking up more of your time than you anticipated, but the reality of stock is that more and more of your time will be occupied with reading and interpreting the news than with actual trading.
There is a lot more we can take from Hollywood on investing, but as a student, these are some of the most important lessons you should have in mind if you want your foray into investing to be worthwhile.