Jordan Belfort's name conjures images of scandal, power, greed, and wealth; with his extravagant lifestyle and notorious reputation, Belfort's story has captured audiences since the release of his memoir and subsequent film adaptation starring Leonardo DiCaprio.
However, beyond his fame and glamour lies an astonishing tale of cunning business tactics and financial fraud, which ultimately lead to his downfall.
We will explore Jordan Belfort's life and strategy by looking at both his successes and failures and uncovering lessons we can draw from his experiences.
Who Is Jordan Belfort?
Jordan Belfort gained his first taste of notoriety as a salesman in the '80s and early '90s. Today, he still earns a handsome sum speaking at international events as a motivational speaker.
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Following graduation, Belfort joined a Wall Street brokerage firm where he made more money by starting his venture; Belfort founded Stratton Oakmont Stock Brokerage firm specializing in penny stocks.
Belfort's strategy was straightforward: he purchased low-priced, inferior stocks.
He convinced clients to buy them by inflating prices through "pump and dump" before selling when the market price peaked - making massive returns without investing anything worthwhile himself.
This enabled Belfort to turn massive profits without actually investing anything of value himself.
Jordan Belfort's Early Life
Jordan Belfort experienced an upbringing that was filled with hardship. Raised in Queens by parents who worked as accountants but struggled financially, their family culture also played a pivotal role in his eventual success; Belfort's father emphasized hard work ethic and dedication as part of their teachings.
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Belfort was raised in an unstable household and suffered from dyslexia at an early age. Despite these challenges, he persevered and eventually attended college, where he studied finance.
At 23 years old, Belfort made an unforgettable impression as he went door-to-door selling meat and seafood on Long Island streets. Thanks to his charisma and determination, he sold over 5,000 pounds within months, but when that success ran its course, his business failed, and he filed for bankruptcy.
Jordan Belfort's Professional Development
Many peaks and valleys marked Belfort's professional journey. Once he had filed for bankruptcy, Belfort subsequently found himself unemployed and badly in need of money to look after his family.
Luckily, soon he secured employment at L.F. Rothschild & Co as a trainee stockbroker. Here he honed his knowledge and abilities and learned more about Wall Street culture and stock trading operations.
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After two years, Belfort was fired for unethical practices at L.F. Rothschild & Co due to Black Monday's stock market crash, which did not signal the end of his career in finance or stocks.
Belfort found success after leaving L.F. Rothschild & Co, working at a penny stock brokerage firm selling penny stocks. Here he discovered his potential and adopted unethical business practices that became his signature style, using these tactics to form Stratton Oakmont, which eventually became one of America's premier trading firms and eventually led him on his journey toward becoming one of the country's wealthiest people.
Establishing Stratton Oakmont
Belfort launched Stratton Oakmont as a franchise of Stratton Securities before buying out the original owner.
Stratton Oakmont
Belfort took an unconventional approach to stock trading that combined risk and reward.
His tactics of pumping and dumping stocks (known as the pump and dump) were often risky but proved successful over time.
By chairing Stratton Oakmont with this technique, Belfort made millions in profits through this unconventional trading style.
Becoming the Wolf of Wall Street
Operating solely as a scam, Stratton Oakmont was an elaborate boiler room.
Primarily selling penny stocks and engaging in pump-and-dump stock sales schemes to defraud investors of billions in investments - this included being behind Steve Madden's initial public offering (IPO).
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Belfort's investment philosophy and strategy centered on his belief that money was a means to an end; he used his wealth to gain power, influence, and respect from his peers. According to him, "it's easier to get rich when you break rules," often by pushing stocks on gullible people.
At its height, Stratton Oakmont employed over 1,000 stockbrokers and generated annual profits estimated to reach $50 million. Due to his ruthlessness and incredible sales skills, Belfort was nicknamed the 'Wolf of Wall Street'.
What Was Belfort's Modus Operandi for Investing Money?
When it came to investing money, The Wolf had a straightforward strategy. He would pool small investments from many smaller investors together to purchase large amounts of stock at bargain prices from more prominent investors - then convince others to buy these shares, driving up its share price so Belfort could sell off his stake for a profit.
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Belfort Jordan justified his investing approach by claiming it would help small investors make money; in reality, however, his and his associates' venture yielded huge returns at the expense of these same investors.
Financial Frauds & Securities Violations
Belfort's financial frauds and securities violations included illegal practices such as overstating stock values and manipulating stock prices, which increased as his success did.
As his financial success grew exponentially, so did his illegal practices.
Belfort's success and unlawful business practices continued to expand rapidly.
Ultimately, the SEC and other government agencies noticed Belfort's many illegal business practices and were charged with securities fraud and money laundering in 1998. This led to a prison sentence of four years.
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Why is Analyzing Belfort's Investment Strategy Necessary?
Analyzing Belfort's investment strategy is important because it warns about unethical investment practices that could potentially jeopardize other investors, such as greed and ambition leading to financial ruin. Furthermore, studying Belfort's strategy provides us with greater insight into Wall Street operations and any possible investing pitfalls.
Belfort's Fall from Grace, Imprisonment & Release from Prison
After being apprehended by authorities, Belfort pleaded guilty to engaging in pump-and-dump schemes that potentially cost his investors as much as $200 million.
Finally, in 2003 he was charged with money laundering and securities fraud and sentenced to four years of incarceration, as well as paying back $110 million as restitution costs.
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In 2005, Belfort was granted parole after serving 22 months of his sentence for good behaviour. After being freed, he wrote his memoir, The Wolf of Wall Street, which later became a feature film.
Summary
Jordan Belfort's story provides ample evidence of the dangers of engaging in unethical investment practices.
According to him, greed can only ever bring trouble. As Belfort himself once put it: "Greed is not good."
Investors and prospective investors should remember that similar strategies are still employed today; hence, it is wise to be wary of what you get into with stock markets. My advice? Buy what you know!
Investors who wish to avoid becoming victims of hype must research and become knowledgeable of all financial aspects they are investing in, maintaining financial awareness.
Unfortunately, pump-and-dump strategies such as GameStop stock continue to be used and must be avoided at all costs.
