Yacht parties. Huge mansions. Flashy cars. Drugs. Girls. Debauchery.
This is the lifestyle depicted by the movie The Wolf of Wall Street. In the film, Leonardo DiCaprio plays Jordan Belfort, the true story about a guy who peddled penny stocks and made a fortune off it.
The question that everyone wants to know… is it possible to be like the Wolf of Wall Street? If some average guy was able to make all that money on Wall Street, well then can I? Are penny stocks the answer?
Jordan Belfort did NOT make his fortune off Wall Street in the traditional way that you think about the stock market. He never owned any stocks, and the business he was involved in was not holding investments.
No, the Wolf of Wall Street was an investment broker. He was the middleman between the individual investor and Wall Street.
As a consequence, there was no incentive for Belfort to help his clients succeed. As a broker, think of the online brokers we see today like eTrade and Tradeking, he only got paid when a transaction was made. Interestingly, this reflects on most of Wall Street today. Many of them don’t get paid based on your success, they only get paid on your action (buys and sells).
So Belfort did what every greedy man without morals would do in his situation. He grabbed the horse by the throat and would say whatever he could to get his client to buy. **SPOILER ALERT** You see, Belfort quickly recognized that the commission on penny stocks was much higher than regular stocks.
All he had to do was to convince his prospect of a hot story, and get them to buy a stock. It didn’t matter what stock it was really, and it didn’t matter to him what the stock did tomorrow. As long as he got the prospect to buy some penny stocks, he would make a fortune.
That’s exactly what the Wolf of Wall Street did. The tale becomes a cautionary tale of the deadly combination between immorality and greed. It also misleads the public in the process.
Though there are certainly bad characters on Wall Street, there are many more good people out there who have made fortunes honestly. Unfortunately, those stories are too boring to make an action thriller out of.
I want to highlight the stories of 5 phenomenal investors, who created enormous amounts of wealth not only for themselves but for their clients and shareholders. They are the heroes of American capitalism and legends in the stock market and investing world.
The 5 Most Successful Value Investors
If you aspire to achieve the kind of wealth depicted in the Wolf of Wall Street movie but don’t wish to sacrifice your morals, consider these inspirational examples.
Benjamin Graham co-founded an investment partnership in 1926 called Graham-Newman, which flourished for 30 years until its termination in 1956. During this time, the partnership earned average annual returns of 17%.
Just $10,000 invested in the Graham-Newman partnership in 1926 would be $1,110,645 by the end of 1956.
Graham forged his reputation as an exceptional investor with his fantastic track record and cemented it with the release of two books, Security Analysis and The Intelligent Investor. Both books went on to become investing classics and Graham was dubbed the “father of value investing”.
Phil Carret gathered $25,000 from family and friends in 1928 to start a mutual fund called the Pioneer Fund. For 55 years the fund was one of the top performers on Wall Street, averaging over 12.5% a year.
A $10,000 investment into the Pioneer Fund in 1928 would become over $8,000,000 at the end of Carret’s career in 1983.
Well-known for being one of the country’s first mutual fund managers, Carret utilized a value oriented strategy of buying steady companies with growing earnings and solid balance sheets and holding them for the long term.
John Templeton started an investment firm called the Templeton Growth Fund in 1954 based in the Bahamas. In the 50 years of its existence, Templeton earned average annual returns of 13.8%.
Just $10,000 invested in the Templeton Growth Fund in 1954 would be $6,413,700 by the end of 2004.
Templeton eventually sold several of his investment funds and moved to the Bahamas after giving away much of his fortune to philanthropy. Templeton utilized a value investing approach by picking bargain stocks that were hated, no matter which country or sector they were in. He was the ultimate example of “buy low, sell high” and he was rewarded for that.
John Neff joined the Wellington Management Company in 1964 to take over as the portfolio manager for Vanguard’s Windsor Fund. In his 31 years of service, Neff earned annual average returns of 13.7%.
A $10,000 investment into Vanguard’s Windsor Fund in 1964 would become $535,271 by the end of 1995.
Neff called his strategy “low P/E investing”, and coupled with a more concentrated portfolio it was able to outperform the market for over 3 decades. He emphasized the importance of a company’s return on equity (ROE), showing evidence of implementation of value investing concepts.
Then of course, there is the wildly famous Warren Buffett. Buffett took over the struggling Berkshire Hathaway in 1965 and turned it from a textile business into a full fledged insurance tyrant. The company is able to use the float from its insurance business to create fantastic returns for its investors.
In a 40 year period, from Buffett’s takeover of Berkshire in 1965 to 2005, Buffett earned average annual returns of 22%. $10,000 in Berkshire in 1965 would become $28,470,402 in 2005, and would be over $50,000,000 today!
Buffett is honored today with many accolades, among those being one of the richest men in the world and nicknamed “The Oracle of Omaha”. Buffett’s investing mentor was none other than Benjamin Graham himself, the first investor on this list.
The Next Wolf of Wall Street?
I want to wrap up this post with some encouragement and inspiration.
This is a special moment for me, in that this 200th post was a major goal of mine. Almost 2 years ago I made a commitment to myself to share the message that anyone can get into the stock market. This website was born, and I told myself I would post 200 blog posts before analyzing whether this business endeavor was a success.
It was this goal that kept me going and kept my writing even when I would push publish and hear nothing back. The first 6 months of blogging was like speaking to a wall. I was putting in all of this effort and seeing none of my desired results.
But I kept pushing, in big part because of the lofty goal I had set before myself. And I’m so glad I did. In this time period I’ve seen major traction on the site. 200,000+ page views, 1,000+ email subscribers, and a sizable monthly income.
I tell you all of this because I want you to know that your dreams are possible. If you are interested in becoming the next Wolf of Wall Street, there’s nothing stopping you. The only person in your way is yourself.
The very first stock I wrote about on this website was a small glass-maker called Corning. Today it’s seen returns of over 87%.
Since then I’ve written about many stocks. I posted monthly recommendations on my site, and have continued posting them at The Sather Research eLetter. 75.4%, 72.2%, 24.2%, 14.8%. These are all returns on stocks I’ve either owned or recommended.
And I’m just some average guy, who happens to like to read about the stock market. If I can find this kind of success in the market, anyone can.
So I really want to challenge you about reaching for your dreams. Your dreams aren’t stupid, and it’s not unreasonable to desire them. Turn off the doubt in your head that fills you with lies. It’s just fear. Fear of the unknown and fear of success.
The path is in front of you. Value investing works.
Remember that nobody has achieved anything by giving in to critics and cynics. Imagine partnering up with a young Warren Buffett or Benjamin Graham when they were in their 20’s and 30’s. At one point they were just a couple of guys with a big dream too.
As for me, I’m going to keep doing what I’ve been doing. Showing people the light, explaining the stock market in the simplest terms, and giving people the hope they deserve. It just feels right. Like I was born to do this.
**200th Post: Who’s the Next Wolf of Wall Street?**
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