6

Stock brokers at Stratton convinced people to buy shit stocks which were never gonna go up. I think it works like this:

  1. If those people became rich, then they'd tell other people to take investing advice from Stratton stock brokers.

  2. If those people suffered huge losses (which was the case), then the reputation of Stratton would die quickly. All people would know that Stratton is terrible at predicting the future of a company.

So, when people suffered horrendous losses because of it, then why didn't Stratton Oakmont quickly develop a bad reputation?

  • @Raditz_35 I don't remember the movie stating anywhere that he made his clients richer. Jordan clearly said that those companies had no future. A very low fraction of people might have gotten rich by pure luck. Stratton must have had a very high failure rate. There must have been other companies with better reputation of making their clients rich. Why didn't people go for those alternatives. – Ryder Rude Feb 14 '18 at 12:52
  • @Raditz_35 I'm not saying that people could look up official data abou Stratton's success rate. But word-of-mouth plays a big role. – Ryder Rude Feb 14 '18 at 13:20
  • People still fall for pyramid schemes. Greed is often much stronger than sense. – BCdotWEB Feb 14 '18 at 14:42
5

Well, it is all pretty much explained in the movie. Also, a few points should be noted:

This all happened between 1989 and 1996:

Stratton Oakmont operated between 1989 and 1996, this was the pre-WWW era as we now it (no social networks, no review websites that will tell you what's good and what's bad, ...), so the word-of-mouth won't have as much impact as it would nowadays.

And most importantly,

Stratton Oakmont used "hard sell" techniques:

From Wikipedia:

They recruit several of Jordan's friends, whom Jordan trains in the art of the "hard sell". The basic method of the firm is a pump and dump scam. To cloak this, Jordan gives the firm the respectable-sounding name of Stratton Oakmont.

What is a "hard sell"? From Wikitionary:

A sales technique of pressuring the potential buyer to agree to a purchase.

What is "pump and dump"? From Wikipedia:

"Pump and dump" (P&D) is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. Once the operators of the scheme "dump" sell their overvalued shares, the price falls and investors lose their money. This is most common with very small corporations, ie "microcaps."

While fraudsters in the past relied on cold calls, the Internet now offers a cheaper and easier way of reaching large numbers of potential investors through spam email, bad data, social media, and fake news.

What are "cold calls"? From Wikipedia:

Cold calling is defined as the solicitation of business from potential customers who have had no prior contact with the salesperson conducting the call. Cold calling is used to attempt to convince potential customers to purchase either the salesperson’s product or service. Cold calling is generally referred to as an over-the-phone process, making it a source of telemarketing, but can also be done in-person by door-to-door salespeople. Though cold calling can be used as a legitimate business tool, scammers can use cold calling as well.

The last paragraph says it all. This is exactly what we've seen happen throughout the entire movie: Stock brokers at Stratton Oakmont cold-calling people and persistently persuade them to buy the stocks.

Here, Jordan Belfort explains it himself:

  • Jordan said to a client at one point in the movie to judge him on his losers (which he has very few). The client had never heard of the company he was calling from. But when Stratton became a popular name, there must have been newspaper articles and TV interviews of countless Stratton victims. – Ryder Rude Feb 15 '18 at 1:56
  • I get it that they used dirty business methods to sell those stocks. But when they called, they'd have to say they're from Stratton. Why didn't the name Stratton have a bad reputation? There was no internet but there was television and newspaper. And when several people get bankrupt because of Stratton, they tell their friends, their friends tell their friends..........bad word-of-mouth spreads. – Ryder Rude Feb 15 '18 at 2:13
  • @RyderRude Well, that did happen, but it took 6 years to happen. In those 6 years they accumulated $3,000,000,000. Plus I don't think there would be newspapers or TV channels that will risk publishing news (without actual proofs) only to get defamatory lawsuits from Stratton. – ibrahim mahrir Feb 15 '18 at 2:28
  • @RyderRude BTW your first comment actually proves that word-of-mouth woudn't have worked as it is customary that stock business may cause losses, so one won't be 100% sure that Stratton is fraudulent if he is told that someone else has suffered a loss, that if he is told at all. – ibrahim mahrir Feb 15 '18 at 2:36

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