Oxstones Investment Club™Oliver Stone’s 1987 movie Wall Street introduced the world to one of the most unforgettable heavy-hitters in cinema history: the corporate raider and financier, Gordon Gekko.
Michael Douglas won a Best Actor Oscar for his vivid performance as Gekko, the ruthless, cynical corporate raider whose reptilian nature is reflected in his name (a gecko is a type of lizard).
The 1980s was a time of unbridled corporate wheeling-and-dealing and stock manipulation. Loosely based on the real-life Ivan Boesky, who eventually went to jail for insider trading, Gekko personifies the rampant greed that precipitated the 1987 crash.
In fact, many analysts are concerned that we’re now heading for another crash that could put the 1987 meltdown to shame. (This group of 29 dangerous stocks would fall the hardest.)
Stone, who wrote and directed the movie, says he learned about the markets by observing his father Louis, who worked as a stockbroker for more than 50 years. This knowledge shows in the script.
To assist your wealth accumulation efforts (aka, “greed”), we’ve culled the seven best tips from Gekko the Great. They made sense in 1987 and they still make sense today.
Gekko Tip No. 1: Don’t get emotional about a stock.
“Goodbye” is often the hardest word.
You can get emotionally attached to an investment, just as you can with a person.
And, as with a personal relationship, it’s very hard to bite the bullet with an investment and call it quits. Sometimes your head tells you one thing, but your heart another.
However, as an investor, you need to listen to your head, and remain coldly rational about your holdings. When a stock, bond, or mutual fund has soured and it’s time to sell, don’t agonize over it. Dump it!
Gekko Tip No. 2: Do your research.
Gekko tells his protégé Bud Fox (Charlie Sheen): “The most valuable commodity I know of is information.” Accordingly, smart investors do their homework.
You don’t have to be a financial wizard to glean the most important statistics about a prospective investment.
But even if the company is a brand name with seemingly predictable growth prospects, a solid understanding of a company’s financials always is worthwhile for any investor.
Think of financial statements as a company’s medical charts, and you’re the doctor who’s using these charts to come up with a diagnosis as to the company’s financial health.
Other sources of objective research include reputable brokerages, including Charles Schwab, T. Rowe Price, and T.D. Ameritrade.
Gekko Tip No. 3: Don’t throw darts at a board.
There are too many solid investments out there with sanguine growth prospects for you to shoulder undue risk or take a shot in the dark.
As Gekko says: “I don’t throw darts at a board. I bet on sure things.”
Through it all, always remember that diversification is your best defense against the gyrations of the economy and the markets.
Ensuring a well-balanced portfolio will compel you from time to time to sell certain investments, in favor of buying others. But it’s never a smart move to buy investments that promise eye-popping gains in return for extreme risk, or to put your money into a company that you simply don’t understand.
Gekko Tip No. 4: Be a contrarian.
The herd mentality is hard to resist; most investors behave like lemmings and march right off a cliff.
They succumb to the “group think” of the media, friends, the Internet, colleagues, family — everyone telling them what stock or investment to buy, everyone ready with brilliant advice.
But here’s a general rule of thumb: Once your barber, cabbie or shoe shine guy starts giving you hot stock tips, it usually means the market has hit a peak.
Remember: Everybody does well in a bull market. But don’t mistake a bull market for brains. Be a contrarian investor. If the herd points in one direction, move in the other.
And the last thing you want to do is bail out of a down market, thereby locking in your losses. You’re usually better off waiting out a downturn, instead of panicking.
Gekko Tip No. 5: If you need a friend, get a dog.
Networking is an important skill, but don’t be swayed by smooth-talking brokers or salespeople trying to peddle investment snake oil.
It’s hard to say “no,” because we all want to be liked, but protect your money by having the courage to push away smarmy people who claim to be your friend but only want to financially gain from the relationship.
Don’t pursue investing to make buddies; do it to make money.
Gekko Tip No. 6: Read Sun-Tzu’s The Art of War.
The Art of War is an ancient Chinese military treatise written by Sun Tzu, a high-ranking military general and strategist. It was all the rage during the 1980s to find lessons in the book applicable to modern life, especially in business.
The book does indeed contain nuggets of timeless wisdom that you can apply to the art of making money. In particular, Gekko offers this Sun Tzu quote: “Every battle is won before it’s ever fought.”
In other words, through preparation and doing your homework, you can guide the future outcome of your investment returns. (That’s why you need to stay informed about the weakest and riskiest stocks and not succumb to their siren’s call.)
Gekko: Tip No. 7: Trust very few people.
Gekko was by nature mistrustful. When it comes to your investments, you should be the same way. The world of investing is a digital one. Problem is, computer hacking incidents are ballooning in frequency and severity, making cybersecurity a top concern around the globe.
According to a recent report released by the Norton consultancy, the global price tag for cybercrime exceeds $110 billion annually, in the form of fraud, theft, repairs and loss. Other scams abound, as the Bernie Madoff affair sadly proves.
Carefully guard your log-ins, passwords and financial data. Your life savings can disappear in a single hacking incident. You might alienate some people by being secretive, but as Gekko advises: “It’s not always the most popular person who gets the job done.”
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