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Finance in Films: Lessons from Hollywood’s Portrayal of Wall Street

Films, when done well, can be one of the best ways to engage people with information. They make us laugh, cry, but, most importantly, they make us think.

When it comes to finance, some of Hollywood’s biggest hits are also some of the most enlightening. Films like ‘The Big Short’, ‘Wall Street’, and ‘The Wolf of Wall Street’ tackle complex financial themes and practices.

But how accurate are these portrayals, and more importantly, what can they teach us about the world of finance? In roughly the next 5 minutes, we’re going to explore just that.

The Big Short (2015) – Adam McKay

‘The Big Short’, it’s a film that managed to make subprime mortgages and credit default swaps seem not only understandable but genuinely fascinating. Set against the backdrop of the 2007-2008 financial crisis, it presents a tangled web of financial practices and institutions, resulting in an economic meltdown that had repercussions worldwide.

The film revolves around a handful of individuals who foresaw the crisis and bet against the U.S. mortgage market. Here, we’re introduced to concepts like mortgage-backed securities and collateralised debt obligations (CDOs). In essence, these are financial products that bundle individual loans together and sell them as a package to investors.

But, as the film suggests, not all loans in these bundles were as reliable as they seemed. Many were “subprime” or risky, and when borrowers started defaulting on these loans, the securities’ value plummeted. The domino effect this triggered across financial markets led to the crisis we now know all too well.

What the ‘Big Short’ does brilliantly is break down these complicated ideas into digestible bits. You don’t need a degree in finance to understand the root of the crisis. And that’s the first key lesson here – financial literacy isn’t just for the experts. It’s for anyone with a bank account, a credit card, or a pension. Understanding how these financial tools work, and how they can both help and hinder, is vital.

In terms of accuracy, the film does a great job. It simplifies without oversimplifying. The nitty-gritty of these financial products is indeed complex, but the overall concept, as the film shows, can be understood broadly by everyone.

Yet, it’s worth noting that ‘The Big Short’ is a film and not a documentary. While it does an excellent job at explaining the cause of the financial crisis, it’s still a Hollywood version of events. But, take it as a springboard, an entry point into the complex world of finance. If it sparks your interest, then run with that, and seek to learn more.

Wall Street (1987) – Oliver Stone

When ‘Wall Street’ hit the screens back in the late 80s, it gave the world a glimpse into the high-stakes world of finance and trading. In the character of Gordon Gekko, a ruthless corporate raider with a knack for insider trading, the movie gave us an unforgettable line: “Greed, for lack of a better word, is good“.

So, what financial lessons can we take for ourselves? For starters, it presents us with the concept of insider trading – using non-public, material information about a company to make investment decisions. And while Gekko may make it look slick, it’s very much illegal and ethically dubious. It creates an uneven playing field, where some have an unfair advantage, which goes against the principles of transparency and fairness that the financial markets are built on.

The film also dips into the world of corporate raiding, where companies are bought, assets stripped and sold, often leading to job losses and instability. This was a prominent practice in the 80s, and ‘Wall Street’ shows the darker side of it, just reminding us about the human cost of such financial decisions.
In terms of accuracy, ‘Wall Street’ does capture the essence and ethos of the financial world in the 80s, but it’s important to remember it’s a dramatisation. Not everyone in finance is a Gordon Gekko. Many work within the rules to create value, build companies, and contribute to the economy.
The key lessons from ‘Wall Street’ are ones of caution. It reminds us to consider the importance of ethics in finance. Whether you’re an individual investor or finance professionals, like us, understanding the rules and why they exist are crucial. This film is a great reminder of what can go wrong when those rules are ignored – not that we need one!

As a viewer and a student of finance, we suggest you let ‘Wall Street’ be a lesson in how not to act. Take its portrayal as an example of the extremes, but don’t let it cloud your view of the finance world as a whole. After all, the world of finance isn’t just about making money, it’s also about making responsible decisions that benefit everyone involved.

The Wolf of Wall Street (2013) – Martin Scorsese

Last but certainly not least, we have ‘The Wolf of Wall Street’. Out of the three, you’re most likely to have seen this one, which tells the true story of Jordan Belfort, a penny stockbroker who made a fortune through a pump-and-dump scheme.

In this film, we’re introduced to the concept of penny stocks – shares of small public companies that trade at significantly low prices. While there’s nothing inherently wrong with penny stocks, the film shows how they can be used for fraudulent schemes. Belfort’s strategy involved artificially inflating the price of these stocks through false and misleading positive statements, only to sell his cheaper-purchased shares at this inflated price. This pump-and-dump scheme not only made Belfort rich but left unsuspecting investors with worthless stocks.
‘The Wolf of Wall Street’ is your daily reminder of the importance of doing your homework before investing – something we stress to our clients regularly using our social reach. It’s essential to understand what you’re investing in and to be aware of the risks involved.
If an investment opportunity sounds too good to be true, it probably is” – deVere CEO, Nigel Green.

Regarding accuracy, the film does an excellent job of showcasing the high-risk, high-reward nature of penny stocks and the lack of regulation in this area during the time Belfort was operating. However, it’s important to remember that today’s financial markets are much more heavily regulated, with stringent checks and balances in place to protect investors.

To summarise, ‘The Wolf of Wall Street’ should give you a pretty clear sense of the darker side of investing and the potential consequences of greed and unethical behaviour. It underlines once more the importance of financial literacy, due diligence, and ethical investing.
While the wild ride of Jordan Belfort might be entertaining to watch, it’s a road best left untravelled in reality. We highly recommend you take it as a lesson to invest wisely and responsibly, doing your due diligence, and always keeping that all important financial well-being at the forefront of every investment decision you make.

Do you find it challenge to discern what is a good investment opportunity and falls under that ‘too good to be true’ category?

Reach out to us on our socials with any questions you have, or better, reach out to one of our expert advisors for comprehensive investment advice.

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