Lessons From Gordon Gekko
I can’t wait for this weekend. I’m going to see the new Wall Street movie. It’s the sequel to the 1987 classic starring Michael Douglas as corporate raider Gordon Gekko.
The original Wall Street is one of my all time favorite films. It’s also one of the main reasons I started studying the stock market in the first place. Don’t judge me… I was an impressionable youth.
If you haven’t seen the original movie (akin to blasphemy), you should get a copy and watch it. Michael Douglas was amazing as the iconic Gordon Gekko. He even won an Oscar for Best Actor that year.
Douglas’ portrayal of Gekko was so true to life that Gekko has become a pop culture icon. He personifies everything society finds wrong with Wall Street and the world of high finance. Essentially, he’s come to symbolize the ruthless pursuit of wealth and unrestrained greed.
Check out this excerpt from a Gordon Gekko speech…
“The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.”
The “Greed is Good” speech is perhaps the most famous part of the movie. To this day, you’ll see references to this speech on trading floors, in business, and even in TV sitcoms. Just ask your broker, I’m sure he’s used it a few times.
Here’s my question… Do you think it’s true? Is greed really good?
As an investor, I believe greed is good. The goal is to make as much money as possible, right?
But what about management of public companies… Is greed the main characteristic we want in our corporate executives?
There’s no obvious answer. Strong arguments can be made for either side. So let’s look at a few real world examples of corporate greed in action…
Take MiniScribe for instance, a pioneer in the burgeoning disk storage industry in the late 1980s. The company was flying high from the explosive growth in personal computers. Well, at least until we found out they had been falsifying sales records for several years.
Why’d they do it? They were trying to impress Wall Street and their shareholders.
Check this out… at one point, MiniScribe even sent bricks to its customers disguised as hard drives. They were trying to collect enough cash to keep operations going. Needless to say, it didn’t work. The ensuing scandal bankrupted MiniScribe and resulted in huge losses for shareholders.
A few years after the MiniScribe scandal, Worldcom was riding high in the telecom industry. But Bernie Ebbers, the CEO, and his cronies treated the company’s bank account like it was their own… even though losses started piling up. They ended up reporting billions of liabilities as assets to hide the truth from the public.
No surprise… they got caught. That bankruptcy cost investors around $11 billion.
And then there’s the subprime meltdown…
The scandal of all scandals! Many estimates put direct investor losses at a whopping $1 trillion. And the one thing everyone can agree on is the entire crisis was driven by greed. Banks, mortgage companies, and homebuyers all let the prospects of getting rich interfere with better judgment.
Here’s my point…
Too much greed is bad for everyone… including shareholders. Think of how much money investors have lost over the years.
Forget emotions. These aren’t emotional decision I’m talking about. Avoiding unrestrained greed can be a good long-term decision for your portfolio.
So what can you do?
Are you going to stop investing in the equity markets? Not likely. At some point, you need to have some faith in the markets. We have to assume most companies are not engaged in criminal pursuits.
But maybe there’s a better way. What if you could invest without worrying about accounting scandals, fraud, or rampant greed…
Believe it or not, it’s not a pipedream. One thing you could try is investing in commodities.
Think about it…
Commodities can’t cheat on their taxes. They can’t illegally classify liabilities as assets or hide massive losses in offshore accounts. There’s no CEO involved who can spend company profits on yachts or private jets.
Best of all, think of the variety in the commodity markets. Worried about inflation? Buy gold. Think there’s going to be an energy shortage? Invest in oil. Predicting a boom in automobiles? Try platinum. Want a piece of the world’s food supply? There’s always wheat.
And the list goes on and on.
I’m not saying commodities are the only way to avoid runaway greed. But I think they’re something you should consider. Many commodities are in liquid markets and easy to trade. Plus, most of the key data on the major commodities is transparent and readily available.
Here’s the bottom line…
By limiting the potential for fraud, you’re helping to maximize your return potential. One way to do this is by investing in commodities. And even Gordon Gekko wouldn’t fault you for doing everything possible to get richer.
Category: Commodities
