[For a brief answer, skip to the bottom]
@F1Krazy gave a great explanation of how early investment in rising stocks before they start rising makes the client a higher profit. Investing in a stock early on, before it starts rising, means that you can buy the stock at a much lower price than once it starts rising. Therefore, making a higher profit when you sell. Between purchase and sale, it’s all fugazi (paper profits, only).
Most people do not have the forethought, ability, insider knowledge, or luck to do that. Most people buy stock based on the stocks history. But, past performance does not indicate future results. Most people will just buy a stock that has already proven itself to be a rising star, when it may be at its peak of price, expecting it to rise more.
They rely on consumer publications like the Wall Street Journal to inform them of hot stocks based on past performance to make their decisions. By the time it reaches the attention of consumer publications, it is too late to be an early investor/adopter. The stock is now common knowledge.
Unfortunately, that is not what Jordan was saying. He does not give two damns about the clients. He is interested in the financial abuse and assault he and his colleagues can perpetrate on his clients for their own gain. He wants to get the higher commission a penny-stock would pay.
Those stocks pay so much in commission because they need to incentivize brokers to recommend and sell these stocks. This takes more effort on the part of the broker and requires more risk of the loss of clients and reputation. These companies are analogous to a person with no credit or bad credit. The person has to be willing to pay higher interest rates to borrow money. These stocks are willing to pay higher commissions. The same goes for high yield bonds.
In the example of Jordan Belfort’s stock strategy, the client pay’s a certain amount for equity in a company at a 100% markup. In other words, for every dollar the client spends, the company of the stock bought gets fifty cents and Oakmont Stratton gets fifty cents. Plus, Oakmont Stratton probably charges an extra broker or trading fee per client account and transaction. When the company fails and the stock collapses, the only losers are the stock company and the clients. The brokers keep their profits.
The issue with your question is that, in text form, you have not recognized the break in the scene. In the first half of the monologue, Wolfy is talking to his underlings face-to-face. In the second half, he is talking to a client/prospect on the phone, with his minions standing behind him (listening and learning). In the first half, he is pitching his strategy to his Ahabs. In the second half, he is pitching a dog-crap stock to a whale, demonstrating the use of the harpoon. He is playing on both groups sense of greed.
