A Man Famous for Chasing Fast Cash Says You Need Time To Do Your Heavy Lifting.
He was a wolf in all the worst ways, and he’s now talking about a lucrative investment for the average person.
I enjoyed writing this almost as much as watching the film. There’s a part to Belfort that I sense lacks remorse. But when it comes to money, it’s undeniable that he knows his stuff. If you enjoy reading this blog, please give it a share. It helps us grow.
The cost of wasted potential can be catastrophic.
Piers Morgan once said, “The people who knew Jordan Belfort in his heyday said he was that good as a trader, and with money, he would’ve been a billionaire without the criminal activity.”
He never needed to cross that line.
Belfort hit rock bottom. He lost his family, wealth, and freedom by misdirecting his remarkable sales and money management skills.
It’s like an old business friend repeatedly told me, “Jay, the money might ebb and flow, but you never lose the skill.”
Jordan Belfort, the character portrayed by Leonardo DiCaprio in the renowned film “The Wolf of Wall Street,” says it’s true.
Jordan Belfort — Source
“The sad part is that if I hadn’t taken that left turn to Albuquerque, so to speak, I would have made $10 or $20 billion because I would’ve hit the internet bubble and taken companies public. One of the biggest mistakes people make is they cut a few corners to make money a little quicker, but big money takes time, and you can’t cut corners.”
Belfort operated a penny-stock scam through his brokerage firm, Stratton Oakmont. The firm used aggressive sales techniques to defraud investors.
Somewhat morbidly, my favourite scene in the film is the Aerotyne Phone Sale, where Leonardo DiCaprio walks into The Investor Centre and sees people trading off pink sheets.
It’s a total amateur hour.
The sales centre manager sits him down and says, “Aerotyne is a very hot stock. They’re just a couple of brothers making radar detectors out of their garage. When you call the company, their mom Dorothy answers.”
Dicaprio responds with, “Six cents a share- who buys this crap?”.
Manager answers: “Mostly Schmucks”.
DiCaprio, portraying Belfort, calls to sell Aerotyne stock to an unsuspecting man named John, and the deceit is brutal.
Leonardo Dicaprio — Source
“John, you requested information on penny stocks with huge upside potential with very little downside risk.
Something just came across my desk, John. It is the best thing I’ve seen in the last six months. Aerotyne International is a cutting-edge, high-tech firm out of the Midwest awaiting imminent patent approval on the next generation of radar detectors with huge military and civilian applications.
John, the stock trades over the counter at 10 cents a share, and John, our analysts indicated it could go a heck of a lot higher than that. Profit on a mere $6,000 investment would be upwards of $60,000.”
John: “Jesus, that’s my mortgage, man. I could pay off my mortgage.”
The trade is locked in, and the rest of the film follows a similar theme of deception and carnage, depicting out-of-control drug binges, hookers and office scenes that resemble a frat party.
It’s not lost on me that many lives were destroyed behind the Hollywood adaptation and the story’s sensationalism.
No matter how great Leonardo DiCaprio acted or how lavish Belfort’s lifestyle was, the victims suffered the most.
Belfort was released from prison in April 2008 after being convicted of defrauding 1,513 investors out of over US$200 million, which included his ex-wife Nadine and his own children.
His sentence included four years behind bars, which he served 22 months, and an obligation to pay 50% of his gross income to victims following his release.
2014, during a global speaking tour, Belfort said he hoped to earn “over $100 million” by giving speeches about his story because “Once everyone is paid back, believe me, I will feel a lot better.”
Now, on his path to redemption, Belfort shares insights on where to invest your money.
I often tread carefully with these characters, but this time, it’s advice worth listening to.
And it’s legal.
Buckle up, and let’s dive into it.
Every investor should do this.
I’m as guilty as the next person getting caught up in the excitement of these tech companies making headlines and posting huge profits.
But an investment’s lack of excitement and monotonous nature makes its success more likely. Or, as Dave Ramsay puts it, “The type of investment you can’t brag about at the country club”.
There is nothing more boring than an Index Fund.
Jordan Belfort’s advice is simple, “Park your money in the S&P500 and forget about it. It’s the most lucrative investment for the average person.”
I never thought I’d hear those words from a man who orchestrated pump-and-dump schemes for quick cash, but what he’s saying makes a lot of sense.
The Oracle of Omaha wrote in his Berkshire Hathaway Letter to investors that his wife should invest most of his wealth into the S&P500 after his death.
This came from a man who outpaced the market by making 3,787,464% gains with his Berkshire Hathaway stock vs the 24,708% increase during the same period of the S&P500.
Warren Buffett: “My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.
I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers,”
Belfort says a few people can beat the S&P500 consistently, but “Guess what, they’re not going to take your money. They are the rock stars of the hedge fund world. Then you have the rest of them that underperform.”
It’s like the greatest kept secret in the world.
Instead of rotating in and out of single stocks and trying to time the market, bet on the entire pie.
Jordan Belfort — Source
“If you simply put your money in the S&P 500 and hold it for the long term, not for one year, not even three years. If you look at the long-term chart over any ten years and then as you go to 20 years and 30 years, if you buy it and hold it, you will outperform 99.9% of all the hedge funds and mutual funds out there.”
I did some digging into the S&P 500 data.
Firstly, the S&P index tracks the performance of 500 large companies listed on stock exchanges in the United States.
Macro investors, traders and politicians often use the S&P500 as a benchmark for the overall health of the U.S. stock market.
If you had consistently invested over the last 20 years, the S&P500 would have given you, on average, a 9.69% return. Assuming you reinvested dividends and not adjusted for inflation.
Let’s crunch the numbers.
Assuming the index averages a 10% annual return, you started with a $10,000 investment 20 years ago. By consistently adding $100 monthly, you’d now be looking at $136,000.
You’ll have a total cost basis of $34,000 over 20 years, making you over $100k with zero brain power or professional investment knowledge.
Final Thoughts.
Usually, I like to search for an opposing view, but it’s hard to find anyone against investing in the S&P 500.
The only argument I hear from Marco traders like Raoul Pal is that inflation has recently been significantly higher, and the S&P500 has mirrored the M2 money supply (all money in circulation).
When you factor in the S&P’s average 10% gain against a 3.5% inflation rate and consider the rate of money printing on a log chart, the S&P 500 essentially breaks even.
I don’t subscribe to this theory.
It’s widely understood asset prices tend to surge artificially when central banks engage in aggressive money printing.
So asset prices rise optically because of the stimulative effects of money.
Invesco research over 50 years, from November 1968 to December 2020, shows that bull markets typically lasted about 4 years and 10 months, while bear markets averaged around 11 months.
During this period, bull markets would give you an average gain of +180.04%, while bear markets saw an average loss of -36.34%.
The issue is timing these events.
Few can accurately predict these market swings in the right companies at the right moments.
It’s a sentiment Jordan Belfort and the late great investor Charlie Munger agree with:
Charlie Munger: “What makes investing so hard is that good businesses don’t stay cheap. Some people get good at spotting them, but not many do. 95% of asset managers I wouldn’t ever hire. You need to be in the top 5%. It’s difficult, but what’s not difficult is buying an Index Fund and sitting on your ass, that’s that great default position”.
In a world of wolves and market volatility, simplicity reigns supreme.
It’s advice from Belfort that’s worth paying attention to.