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Gekko-nomics

What we can learn about the stock market from the movie ‘Wall Street’

Gekkonomics

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Ah, the cinema. It’s where I learned valuable lessons about life, love, and how if I took off my glasses and lost the overalls, I too could be voted prom queen (note: this is false).

It’s also where I came obsessed with “money movies.” They’re a decent-sized sub-genre of films, usually set on Wall Street, that typically spend an hour and a half glamorizing all the great stuff greed can buy you before reminding us that greed is bad.

Let’s start with the quintessential finance flick: 1987’s Wall Street has had such an indelible imprint on the culture, you can still walk into any undergraduate business class and meet a guy named Carson who will tell you “greed captures the essence of the human spirit” without an ounce of self-awareness.

But if it’s been awhile since you spent a sick day parked in front of TBS, Wall Street follows Bud Fox (Charlie Sheen), a wide-eyed, eager young stockbroker who’s keen to advance in his career. After serpentine hedge fund manager Gordon Gekko (Michael Douglas) takes him under his wing, Fox quickly rises to the corner office through a series of financial scams. Then follows the money, the trophy girlfriend, and the most ridiculous 80s home decor laundered money can buy. Of course, Fox’s sense of human decency eventually returns, and the movie ends with Fox snitching on Gekko and turning himself into the feds. Typical Aesop’s fable kind of stuff, right?

But wait, there’s more to learn!

Investment banking has been good for those at the top.

Wall Street opens with Fox crammed into a cubicle, endlessly cold calling uninterested clients to a pounding new-wave soundtrack. “You know what my dream is?” Fox asks a co-worker. “It’s to be on the other end of that phone call.” So he memorizes tired sales scripts and pushes crappy products in the hopes that someone, anyone will bite.

Meanwhile, Gekko sits at the top of the Wall Street hierarchy as a hedge fund manager—a role that gives him a substantial cut of his clients’ profits. Gekko boasts about earning $800,000 in a day, which honestly is pocket change nowadaysin 2013, real-life hedge fund manager John Paulson earned $2.3 billion. Yeah, that’s billion with a “b.”

Do your research.

OK, so Gekko is a morally bankrupt proto-Trump topped with only slightly better hair, but in some incredibly specific regards, he’s actually a decent financial role model. Gekko’s approach to investing was meticulous, and he made sure he always knew exactly what he was buying before he committed. When Fox finally gets an appointment with him to talk airline stocks, Gekko already knows that Fox got his information from his father’s ties to the company. The most valuable commodity I know of is information,” Gekko says to Fox. “I don’t throw darts at a board. I bet on sure things.” This is really, really excellent advice, and you should probably recite to yourself before you make any impulse purchase or believe anyone’s “hot tip.”

However, taking research to extremes like Fox does can be problematic. He stalks his competitors through the streets Manhattan, and even dresses as a cleaner to break into corporate offices and read their confidential documents. This makes for great sight gags on film, but it’s super illegal IRL.

Be a contrarian.

Once again, Gekko says it best. “Ever wonder why fund managers can’t beat the S&P 500? ‘Cause they’re sheep, and sheep get slaughtered.”

When people first start out investing, it’ll be tempting to switch their stocks based on every newspaper headline, co-worker, blog post, or family member with an insight. But the truth is, by the time people are talking about a stock, it’s likely to be overvalued and you’ve missed your window. Do your own research, figure out what makes the most sense for you and where the unseen opportunities lie, and invest accordingly. You don’t need to follow the pack if you’re confident in your strategy.   

Don’t try to game the system.

When Gekko wants to stop his rivals from purchasing enough shares to control a company, he leaks word on its takeover to the press. The company’s value in the market skyrockets, and boom, Gekko’s competitors can’t afford it anymore. In a poetic twist, Fox later does a similar same thing to Gekko, preventing him from owning Bluestar Airlines and laying off Fox’s father, and ultimately dismantling his empire.

While you could technically still pull this con off, there’s been a big increase in regulation after the 2008 market crash. But since it’s just as illegal now as it was in the 80s, it’s not a great tactic.

Hold onto your ethics.

Fox starts out wide-eyed and uncorrupted (no small feat for Charlie Sheen to pull off), but eventually the bright lights and big city get the better of him. Since this is Hollywood, and not the actual Wall Street, the movie ends with Fox getting busted for insider trading.

“The main thing about money, Bud: it makes you do things you don’t want to do,” warns Fox’s colleague Lou Mannheim. As with anything money-related, investing can nudge you into some complicated ethical territory, a place you might not want to be. Like, should you put your money into a super-profitable company whose environmental record is terrible? Determine what you’re comfortable doing before you set out, and don’t stray from the path once temptation hits. (Tip: “Don’t commit crimes” can also work as a handy rule of thumb.)

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