Editor’s note: This article was first published in July 2013. John Paulson’s roughly $3.7 billion in 2007 and the description of hedge fund careers reflect the situation in 2013.
Investopedia recently published an article looking at how true to life Hollywood’s portrayal is and how closely the various films about Wall Street resemble reality. Besides “Wall Street”, with Michael Douglas as Gordon Gekko, the comparison included films such as “Trading Places” and “Working Girl”.
For anyone who wants to work in the stock market, how much truth is there in the jobs these fictional characters do? To begin with, the most realistic of the films mentioned would be the famous “Wall Street”, Gekko’s movie.
Gordon Gekko, the hedge fund manager
In “Wall Street”, Gordon Gekko was an alternative asset manager, which essentially means the famous hedge funds, specialists in managing private capital. Hedge fund managers are the pinnacle of Wall Street, since they tend to be multimillionaires. Let’s say Gekko was a Bill Ackman, a George Soros and almost a Warren Buffett.
Although they use a variety of techniques to make big money, they usually share two general characteristics.
On the one hand, they have a compensation structure that lets them take a generous share of the profits they generate for their firms. On the other, they have the potential to earn unimaginable sums. To give you an idea, John Paulson made around $3.7 billion in 2007.
Their career path is far from easy. In the past all it took was skill and ambition, but today these managers have university degrees and extensive previous experience as analysts, brokers or investment bankers. Once they have the experience they need and have proven their worth, they can start raising money to set up their own investment funds or hedge funds. In boom times it’s very easy to start a fund and make a profit. Anyone can become a Gordon Gekko, but in times of crisis and tight credit it’s much harder, and the failure rate among fund managers is quite high.
The goal for anyone with ambition on Wall Street is to end up with your own investment fund. If you don’t get that far, you can be a millionaire, but just one more of the many millionaires Wall Street creates in every bull market.
What Gordon Gekko’s day looks like in the real world
It’s very similar to what we see in the film: on the phone all day, a mind busy every hour, and high-risk decisions every day. That’s why you need to be able to handle pressure and be willing to work long hours to succeed in a highly competitive world.
How realistic is the stockbroker?
In the film, Charlie Sheen played Bud Fox, an ambitious stockbroker who worked at a firm where he was essentially a salesman of stocks. And that’s how every broker starts out. First you spend a year or two helping clients meet their financial goals and helping the firm make money for itself. The pay in this job is relatively low, whatever you might think, and the work doesn’t end when you leave the office, because you have to analyze charts and follow other markets around the world.
To succeed on Wall Street, bearing in mind that you have to start at the bottom, your instinct for picking stocks or your training as an investor won’t be enough: you’ll also need good sales skills.
Bud Fox reflects the typical Wall Street broker: a young man willing to work hard, ambitious and unafraid of failure. Just as in real life, a broker’s greatest dream is to work hand in hand with a financial “tycoon”.
Of course, the one thing that doesn’t match reality is how quickly Bud Fox becomes a millionaire.
Another similarity is that to make the kind of fortune Gordon Gekko makes, you’ll need the same thing he needs: first-hand information before other investors get it, what is known as insider information, which isn’t a crime until they can prove it, and that rarely happens. Madoff himself admitted that to get rich on Wall Street, you have to cheat.
Featured image: Alex Proimos from Sydney, Australia, CC BY 2.0, via Wikimedia Commons.
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