No, I have not seen the movie yet, although I hope to this week. I have, however, read the reviews, as well as an interview with the person at the center of the story, the perpetrator if you will. Sounds like quite a story.
The Wolf of Wall Street is all about how would-be investors got ripped off—cheated—by their brokers. Although this certainly is timely, the more interesting take on this moving into the New Year is how to help yourself not get ripped off. To that end, I have been going back and reading and rereading books about the markets from earlier eras.
One of the best of them, Reminiscences of a Stock Operator, has been particularly interesting to reread. The book is a thinly fictionalized account of the life of one of the most successful and feared traders on Wall Street in the early part of the last century, Jesse Livermore, and was first published more than 70 years ago.
I first read this in college, and thought at the time that it seemed operatic. It was hard for me, then, to believe much of it. After investing—speculating, in reality, but at the time I thought I was investing—during the dot-com boom and bust, and having spent the past seven years at Commonwealth looking at all sorts of investments and managers, however, it is all too believable.
For anyone seeing the Wolf of Wall Street movie and wanting to know more about investing or speculation, Reminiscences of a Stock Broker is a wonderful book, full of wisdom and insight despite its age. Markets are much more about human nature than anything else, and that does not change. Seeing a bygone world through the eyes of Livermore provides an engrossing context for serious investment wisdom. Recommended.
For a more recent take on what it takes to succeed in the markets as a trader, you can’t do better than Jack Schwager’s book Market Wizards: Interviews with Top Traders. Apparently, it has been recently updated, and I plan to get the most recent version.
The book is exactly what it says, interviews with some of the most successful traders in the market. If you want to know what these people think is needed to succeed—and how, in almost all cases, they came very close to failure at least once—this is the book to read. Schwager has done a series of these books, and all are useful, but the first is the best in my opinion. Contrasting the insights of the interviewees here with those from the Livermore book shows, again, just how little has changed.
Both the Schwager and Livermore books are about the trading, or speculative, aspects of the financial markets—which are fascinating and fun. For most people, though, investing is far more important than speculating, and there are a couple of books I am rereading about that as well.
The first, which I have mentioned before but simply can’t omit, is Benjamin Graham’s The Intelligent Investor. The fact that Warren Buffett is listed as a collaborator on this edition tells you a lot. As a guide to investing, as opposed to the speculation of Livermore, this simply cannot be bettered. Graham provides solid, proven guidance on how to succeed as a long-term investor, which has been proven by, among others, Warren Buffett.
The second is somewhat between the trading and investment position, as it deals more deeply with looking at individual stocks, William O’Neil’s How to Make Money in Stocks. This has come out in several editions, of which I have the first and third.
This is an interesting book because it is an attempt by a successful investor/trader to systematize the inclusion of both fundamental factors (Graham) and technical factors (Schwager/Livermore). As such, it emphasizes long-term holds as ideal, but champions the idea of buying at the right, technically supported, time and of getting out if a stock does not perform.
The interesting thing about the multiple editions is that, according to at least one interpretation, from the American Association of Individual Investors, they yield slightly different methodologies and different results. You can see this if you scroll about halfway down this page in the Growth with Price Momentum screen section on the AAII website—three screens, derived from different editions of the same book, with very different results.
In the end, this is symptomatic of what we should take away from any of these books. The key to not getting ripped off is to understand what you are doing, why, and why it will either succeed or fail. I am not recommending any of the methods in any of these books—but I am recommending the books themselves. The more you understand about the markets and the underlying assets, the better positioned you may be to protect yourself.
It’s a lifelong quest.