Money in the Movies

Transcript

Michael MacKelvie: Money is the topic of conversation in many movies. The question is the legitimacy of some of these movies and how they portray the financial industry. That’s what Valerie and I are here to react today. All right, Valerie, first just movie, I think, that jumps out in recent decade, might be longer than a decade. Movies are weird where it’s like you think it’s only five years old and it’s like 15. I think “Big Short” was 10 to 15 years, right?

Valerie Escobar: I don’t know, actually. It goes over the 2008 thing and so I’m guessing it was probably about 10 years…

Michael: Yeah.

Valerie: …ago?

Michael: Yeah. Yeah. Yeah. I feel like it was maybe like 2012, right?

Valerie: Yeah, that could be right.

Michael: I think that movie jumps out as far as just recent financial movies, and I thought it was actually well done. It’s obviously a good movie. The question, of course, is the legitimacy of things and the rarity of the findings and outcome in that movie. I don’t know what you thought of it, but Michael Burry obviously the subject of that movie and how he shorted the market famously by looking into real estate-backed securities. So, I don’t know what your thoughts were on it, but yeah, that’s one that jumps out to me.

Valerie: I love that movie because it did, like you say, I thought it captured the craziness of it so well. During 2008, that was actually right around when I bought my first house in all of my young wisdom at that time. I do remember firsthand that there was so much euphoria that anybody could get a loan, and I remember when I got my mortgage, I thought, “Man, I barely have even gotten a job. This seems a little bit nuts to be able to have this mortgage,” but the terms were just so flexible and money was so easy. This movie specifically covers three different firms that were able to take advantage of this. As you said, Michael Burry, his firm was called Scion Capital, and he was really the guy who realized, “This is going to go bad.” So, what he did was he effectively shorted or betted against mortgage-backed securities.

So effectively what that meant was that if mortgage owners such as my young self at the time, or as long as I was able to continue to pay my mortgage and everything was great and I didn’t want to sell my house or the value of my house kept skyrocketing up, then everything’s totally fine. But if something went wrong with any of those factors, then those mortgages could start to default and that would have this huge ripple effect. So one of the things that I thought was really interesting, and this is such a nerdy nuance thing, but his character, one of the things that he did as he was shorting these mortgages, it was very expensive to be able to do that. So his investors, they were seeing their money lose.

So they were like, “Those are my investments. I pay you a ton of money to make me money, and it’s just going down the toilet. I want it out.” They were suing him. What he did was he basically put a liquidity window…he closed a liquidity window, said, “No more, you cannot take your money.” That is extremely scary for a lot of investors. One, they see their money going down or they see their investment dropping, and then they want it and there’s no reprieve. He said, “Nope, sorry, I can’t do it.” That’s real. That really does happen. There’ll be private investments, it’s pretty common that there are liquidity windows that say, “We need to keep the money locked up because that’s the way that we’re going to operate this business, and we can’t make a return if the money’s coming in and out.”

Michael: Right.

Valerie: In this case, which in many cases it’s just you got to get through the storm and his bet, absolutely, hands down, I think it was a 400% or something by the end of the day.

Michael: Right, which relative to everything else was a magnified gain, right?

Valerie: Yeah.

Michael: If you consider everything else was down considerably at that point.

Valerie: Right.

Michael: Yeah. I think people tend to just group together a large part of the financial sphere into what he does. They maybe think that, for example, you and I are making these calls at times, which I guess depending on who you’re working with, what type of advisor, maybe a more traditional wirehouse, they are making more specific decisions frequently, they’re more active. There’s certainly advisors out there that do that. At Mariner, I think I could speak broadly and say that that is certainly not our approach, at least holistically working with clients.

Mostly our role is getting into more of the math, the specifics of the planning and figuring out ways to reduce inefficiencies such as taxes, less concerned, at least from a planning standpoint, with making, let’s just say, risky moves from just a return standpoint, looking to outpace the market with just portfolio management. Investment management’s obviously very important. It’s just to say that I think as certified financial planners, that’s typically less or more of the CFA, who’s managing the portfolio or in this case, managing the account depending on who it is, right?

Valerie: Absolutely. Yeah.

Michael: But I think people tend to group us all together. I don’t know if you get that sometimes, but I seem to hear that.

Valerie: Yeah, for sure. We definitely get that some clients are looking to catch that shooting star, right? They’re like, “We want him to invest my…” Yeah. They were losing huge amounts of money, too, and most people can’t afford it.

Michael: Well, if you look at what Michael Burry has done since then, right?

Valerie: Right.

Michael: I think that serves as a good representation. So, if you take a large bet like that and you multiply it, you do it several times, there’s going to be a point in time where you say, “It’s going to rain,” and eventually it just rains. Right?

Valerie: Right.

Michael: It’s likely that as we continue to spin around the sun, we will have at least one more day of rain, certainly, likely here in the Seattle metro area. So those types of things, it’s not to say he didn’t have any analysis that went into it, he clearly did. It’s just that if you examine his body of work, which I think is important here, you might find that those large of, I wouldn’t call it a bet, but that big of a decision to go after that type of return in a portfolio comes with a lot of baggage, in a way, and it’s challenging, right?

Valerie: Yeah.

Michael: But again, I think we get sometimes grouped together with those individuals. There’s different roles in the financial sphere. Another, I think, movie that leaps out to me is “Wolf of Wall Street” as far as the last 10 to 15 years, more provocative tale of sorts, less maybe more industry-driven, like “The Big Short” and relatable for the public. This was peak Wall Street period, I believe ’80s and ’90s is when that was set. Familiar books that come to mind for me, “Den of Thieves” truly was a different time on Wall Street. You had stockbrokers operating almost entirely, from my understanding, off of commissions at that point in time. Whereas today, most of the industry is a percentage of assets. It’s an advisory relationship. So that created an obvious conflict of interest, which led to some of these tales like “Wolf of Wall Street,” where you have people like Leo portraying, I forget what his name was. Was it…

Valerie: Jordan Belfort.

Michael: Jordan Belfort.

Valerie: Yeah, I think that was the name in the movie. That’s definitely the real-life character he was portraying.

Michael: We should probably seek to say his name the least, just because it’s like we’re just giving them more clout in a way. But that conflict of interest, it’s so clear to see. If I’m calling you up and I’m saying, “Yeah, you should move your position,” and I directly benefit that largely from that move, it’s easy to see where there’s maybe that type of conflict again for the broker at that time. Obviously today, a much different landscape in part because of what happened during those periods. You and I call up the clients that we manage, there aren’t commissions like there were in the ’80s and ’90s.

Most of the time, the vast majority of time, there’s nothing at all. Right? I can’t remember the last time that I did receive commission on anything. It was probably when I was a broker-dealer, advisor eight years ago. So the market has changed considerably, but I still think you do see some advisors, some folks out there that are maybe more sales oriented, which is a disservice to that endgame client. I think an important reason why you should talk to a few different advisors and get a good, well-rounded opinion as to how the just business works, right?

Valerie: Yeah. Yeah. That movie is really interesting. I was laughing because I was just telling my producer that there was a point I couldn’t watch the movie anymore because it just became so over the top. It’s real. It is what happened during that culture in the late ’80s that really there was a lot of fraud going on. It was just a lot of drugs, a lot of unrealistic, crazy target goals that they had and they could get it, but it wasn’t done legally or fairly. So one of the schemes that they have, which I always think is interesting, it’s called pump-and-dump. So what they would do is they would effectively buy a stock, then they would call everybody they knew, their, quote, unquote, “clients,” sell them the stock, tell them how amazing it was, that it was a once-in-a-lifetime deal. Then they would buy it, get the price to go way up, right?

Michael: Yeah.

Valerie: Then once it was at a high level, they would sell it themselves…

Michael: Talk about a zero…

Valerie: So they were basically undercutting their own…

Michael: Literally the definition of a zero-sum game, right?

Valerie: Yeah.

Michael: When you’re doing that, there’s no real value. There’s no intrinsic value that is being created out of that process.

Valerie: Yeah. It’s just fraud.

Michael: There’s effectively a winner and a loser. Yeah.

Valerie: Yeah. Yeah.

Michael: There’s just a winner and a loser.

Valerie: Now that’s what the SEC has made very specific laws against this sort of behavior, but…

Michael: Yes.

Valerie: …that was a real thing that happened.

Michael: Yeah. Yeah, and I think that’s where regulation is very interesting. Obviously, regulation is good and bad in any industry. The bad is clearly, it slows the process down for any business. The good is it’s theoretically there to protect the people on the other side of the deal; in this case, people that would be investing money with an advisor or a financial firm. I think we have just been given a real-time case study of this in the last 24 months via crypto, NFT. It’s almost laughable, but when’s the last time you even heard NFT? That was behind the, maybe the most common three-letter word I heard for about, I don’t know, seven, eight months, and then suddenly it’s just gone. It’s not to say that it couldn’t return and that there might be something with the meta.

I’m not qualified enough in that sphere at this point in my life to say there’s value there, but you can see where there was a lot of people in the social sphere that were not regulated, that were talking openly about this, very much giving financial advice directly. They didn’t really wear any repercussions of that because there was no regulation, and obviously it’s come back to bite a few of them, but because they weren’t regulated, that endgame customer wasn’t protected as much if they went back and said, “Well, wait a second, that person was giving advice. I watched their YouTube video.” We’ve been given that example of the need for regulation just even with what’s happened in the YouTube media sphere or the TikTok media sphere, right?

Valerie: Yeah. Yeah, and I think one theme that you see running between these two and many of these films is just the euphoria that happens in that the way that that is used against the victims, really…

Michael: Right.

Valerie: …Steve Carell’s character in “Big Short” was told, “Stop being a buzzkill. Everybody’s drinking the Kool-Aid here. We’re all having a great time and watching the mortgage-backed securities continue to do well. Stop blowing that whistle and ruining our party.” Then same thing with “Wolf of Wall Street,” they were calling them once-in-a-lifetime deal. I hate when I hear that. I’m like, “No, run the other way,” and that occasionally does happen. It’s usually a medical device or something like that. It’s a once-in-a-lifetime deal that no one’s going to get past it.

Michael: Right.

Valerie: It’s not.

Michael: Yeah, there’s always someone on the other side of that trade. That’s what I think of that specific Steve Carell moment in that movie, thinking about the zero-sum game nature of it, right? There’s somebody else on the other side of that trade. I don’t know if you ever think of that, but when you sell, buy stock, sometimes it gets lost in the digital process. You remember occasionally, at least I do, gosh, there was someone out there that decided to essentially exchange this with me, some human, whether it was with a corporation or it was just an individual investor.

I think that brings back that realness of, okay, in some of these movies, obviously some bad things were happening. They’re portraying this, and there’s not really any intrinsic value that was created out of it. It was just people getting hurt on the other side. Another few pieces that pop up to me as far as just recent shows, you have “Ozarks.” The main character there is, quote, unquote, “good with numbers,” and is just, I guess, very talented at deception, doesn’t paint the best picture for the financial planning sphere. Beyond that, I think “Ballers,” if you’ve ever seen that show?

Valerie: I actually haven’t, no.

Michael: Okay. I saw a few episodes. I was a little worried seeing Dwayne “The Rock” Johnson cast as the lead financial planner. Not to say that he’s not a sharp guy and doesn’t work hard, but you know what you’re going to be…

Valerie: You’re afraid that you were now expected to…

Michael: You know what you’re going to be watching before you even turn it on. It’s like “Ballers,” right. Financial planner trying to get all these athlete clients. I think if you actually just distill some of the advice that comes out of that show, obviously it’s a show and so they’re trying to make it fun and exciting, but a lot of the advice that comes out of it is pretty relevant. Mostly it’s just generic, “Hey, don’t spend too much money. Make sure to diversify,” things that are simple but not always easy to follow through on, certainly for young athletes that might be getting a major bag at 22 or 23. So I think that show actually is probably less, from an advice standpoint, easy to criticize. Obviously, there’s some just show-ness to it, but it’s maybe not as much bad advice at the end of it, at least the episodes I’ve seen. Other movies or shows that you can think of out there that float around? Those are the big ones that I know we were thinking about beforehand.

Valerie: Yeah, I think the one that I don’t know, the Wall Street classic, Gordon Gekko’s line of, “Greed is good,” is always… it’s funny to me because the philosophy is that the strong will survive, and you’ve got to lean into that, but only to so far and the greed, it becomes overwhelming. Again, that’s like this theme we always advise against investors. Nothing’s just going to keep going up forever, and it’s best to just be boring and diversified and have practices that make very poor movies because they’re not that interesting. So that’s kind of the world in which we live in.

Michael: I don’t think you or I will be getting any feature films. But again, peak Wall Street, and it’s interesting how much the industry really has changed. At that point, it was very much the best salespeople were the best stockbrokers. That’s all it was, in a way. You just look at a company like Mariner where we have this model set up where we’re not maybe actively prospecting, we truly are playing the role of an advisor. We’re not trying to call 50 to 100 times a day. We’re working with clients more intimately. We have relationships to onboard those new clients and bring them to us so that we can just advise. The world is very much developed in a way that hopefully over time we have more people in alignment with helping that endgame customer, in this case, to provide more intrinsic value.

I think that’s hopefully the case in the long run, but anytime you have new industries, new pieces of the financial world that pop up, there will undoubtedly be skepticism that should creep into your mind as far as, how legitimate is this? Is there somebody there that’s in my best interest? Right?

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