Why did people continue to trust Stratton in the Wolf of Wall Street?
Stock brokers at Stratton convinced people to buy shit stocks which were never gonna go up. I think it works like this:
If those people became rich, then they'd tell other people to take investing advice from Stratton stock brokers.
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?
Best Answer
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:
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What did Stratton Oakmont do?
Stratton Oakmont participated in pump-and-dump schemes, a form of microcap stock fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements to sell the cheaply purchased stock at a higher price.Why is Stratton called Oakmont?
His firm, Stratton Oakmont, named to sound like a venerable white shoe firm, started as a phone bank in the show room of an abandoned car lot in Queens. His scam, which amounts to "you bought, we sold" is among the oldest in the investment industry.Did Stratton Oakmont make money?
Market Manipulation: Stratton Oakmont could have made millions of dollars just by selling its customers stock in nearly worthless companies for $4 per share, but after a couple of such IPOs, investors and regulators would have caught on. Instead, Jordan Belfort used the stock market to camouflage his theft.How much money did Stratton Oakmont steal?
Belfort, whose Long Island-based stock brokerage Stratton Oakmont stole more than $200 million from investors over seven years, is going on a 45-city speaking tour in the U.S., according to Bloomberg.Stratton Oakmond and the story of (real) Jordan Belfort
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