The Wolf of Wall Street Aerotyne Phone Sale
I actually emailed Jordan Belfort about that scene.
I wanted to know:
1) Did he really nail his first cold-call sale?
2) Did he really overprice the stock to the customer (Aerotyne was six cents; he said ten)?
3) Were the other brokers really wowed by his sale?
He never replied.
Good for him. No time for idiots like me who didn’t do their homework.
The true story — well, as Belfort tells it, at least — is in his second book, Catching the Wolf of Wall Street.
Here’s the sales dialogue from the movie:
Hello, John, how are you doing today? You mailed in my company a postcard a few weeks back requesting information on penny stocks that had huge upside potential with very little downside risk. Does that ring a bell?
Yeah, I may have sent something.
Okay, great. The reason for the call today, John, is, something just came across my desk, John. It is perhaps the best thing I’ve seen in the last six months. If you have 60 seconds, I’d like to share the idea with you. You got a minute?
Actually, I’m really very…
The name of the company, Aerotyne International. It is a cutting edge high-tech firm out of the Midwest awaiting imminent patent approval on the next generation of radar detectors that have both huge military and civilian applications now. Right now, John, the stock trades over-the-counter at 10 cents a share. And by the way, John, our analysts indicate it could go a heck of a lot higher than that. Your profit on a mere $6,000 investment would be upwards of $60,000!
Jesus! That’s my mortgage, man.
Exactly. You could pay off your mortgage.
This stock will pay off my house?
John, one thing I can promise you, even in this market, is that I never ask my clients to judge me on my winners. I ask them to judge me on my losers because I have so few. And in the case of Aerotyne, based on every technical factor out there, John, we are looking at a grand slam home run.
Okay, let’s do it. I’ll do four grand.
$4,000? That’d be 40,000 shares, John. Let me lock in that trade right now and get back to you with my secretary with an exact confirmation. Sound good, John?
Yeah, sounds good.
Great. Hey, John. Thank you for your vote of confidence. And welcome to the Investor’s Center.
Yeah, thanks a lot, man.
How’d you fucking do that?
In the book, Investors’ Center is on the second floor or a three-floor building (in the movie, a strip mall storefront). The guy in charge was named George (Dwayne in the movie) and looked like Mr. Kotter from Welcome Back, Kotter.
This book excerpt, which has the in-custody Belfort explaining as a flashback his first sale with Investors’ Center, opens with George telling the newly-hired Belfort:
‘That’s Chris Knight; he’s our top salesman. He’s got a helluva rap. Listen …’
“I nodded and focused my attention on Chris, who was tall and lanky and had a face longer than a thoroughbred’s. He was no older than twenty, and he was dressed like he’d just strolled in from a keg party. I remember being appalled at how terrible he sounded. He was mumbling, slurring; I could hardly understand the guy! Then, out of nowhere, he started screaming into his telephone, in short rapid-fire bursts of ludicrous sales hype. ‘Jesus Christ — Bill — I guarantee it!’ he screamed. ‘I guarantee this stock is going up! You can’t lose here — it’s impossible! I have information — it’s not even public yet — do you hear me? I don’t think you do, because I have inside information!’ And then he yanked the phone away from his ear and held it out in front of his own nose and stared at the receiver with contempt. Then, after five seconds of staring, he put the phone back to his ear and started screaming again. I looked at George and said, ‘What the hell was that all about?’ and George nodded his head knowingly and said, ‘He’s pretty good, isn’t he?’ And I just shook my head in disbelief and said nothing. Meanwhile, Chris was still screaming, ‘Don’t you understand? We can’t lose here, Bill! I promise you! The stock is going to the moon! No ifs, ands, or buts! You gotta buy it now — right now!'”
I shrugged and said, “During my six months at LF Rothschild, I never heard anything so ridiculous, and I’m not just talking about all the securities laws he was violating but also his complete lack of professionalism. All this screaming and shouting and ridiculous sales hype was so Mickey Mouse-ish that no one with even the slightest bit of financial sophistication would give this guy the time of day.”
The Bastard [Federal Prosecutor] held up his hand. “Let me get this straight,” he said skeptically. “You’re saying you’re not a proponent of sales hype?”
I turned the corners of my mouth down and shook my head. “No, I’m not, actually. Selling through hype is a complete waste of time. In military terms, it’s like carpet bombing. It’s very loud and menacing, but it’s only marginally effective. At Stratton, I taught a different style of selling, which was the equivalent of dropping laser-guided smart bombs on high-priority targets.” I shrugged. “Let me take things in order and you’ll see exactly what I’m talking about.”
The Bastard nodded slowly.
“All right,” I said. “So as awful a salesman as Chris Knight was — or, should I say, as untrained a salesman as he was — it was what came out of his mouth next that truly shocked me. ‘Oh — come on!’ he screamed at his client. ‘The stock’s only thirty cents a share. Pick up a thousand shares, that’s all I’m asking! It’s only a three-hundred-dollar investment; how could you go wrong?’
“With that, I turned to George and said, ‘Did he just say thirty cents a share?’ And George said, ‘Yeah. Why?’
“‘Well, it’s just that I’ve never heard of stocks that cheap. I was trained at a Big Board firm — meaning we sold mostly New York Stock Exchange stocks. And even then, the stuff we did on NASDAQ was in the fifteen-to-twenty-dollar range.’
“Meanwhile, Chris was busy slamming down his phone in anger. Then he started muttering: ‘That motherfucker hung up on me! What a rat bastard!’ So George looks at me and says, ‘No worries, he’ll get the next one. But either way, you should sit next to him for a few days, so he can show you the ropes.’
“Well, I was about to break out into outright laughter, but then George added, ‘He did make over ten grand last month. How much did you make?’
“I looked at George in disbelief, wondering how a moron like Chris Knight could make ten thousand dollars in a month; then something very odd occurred to me. ‘Wait a second,’ I said to him. ‘How the hell did he make ten thousand dollars working on three-hundred-dollar trades?’ Then I explained to George how a three-hundred-dollar trade at LF Rothschild would yield a commission of between three and six dollars — depending on how aggressive you wanted to get with the client. And sometimes the commissions were even lower than that, I added, especially on tickets of a half million or more.
“So George waved me into his office to offer me a visual explanation. He grabbed a sheet of paper off his desk and said, ‘These are the only stocks you’ll be recommending here. There are six of them.’ He handed me the sheet of paper, and I took a moment to study it. `KBF Pollution Control?’ I muttered to myself. Arncliffe National?’ I was about to say, ‘I’ve never heard of any of these stocks,’ when George pointed to a column of numbers and said, ‘These are the bids for the stocks,’ and I saw that they were all under a dollar. I was about to say, ‘These must be real pieces of shit if they’re all under a dollar,’ when he pointed to another column of numbers and said, ‘And these are the offers. Everything in between is your commission.'”
I paused for a moment to let my words sink in. Then I smiled and said, “You might find this hard to believe, given my current level of sophistication, but back then I didn’t understand the difference between the bid and the offer. I mean, I knew you sold at the bid and bought at the offer, but I’d never really considered what happened to the money in between.
“You see, with big stocks the difference between the two is small, maybe half a percent, and only occasionally do the brokers get a sliver of it; usually it’s glommed up by traders. In fact, at Rothschild, the brokers would go absolutely wild when a block of stock came with a spread in it. They would call their clients and bang them over the head, because they were making double commission.
“But at the Investors’ Center, I couldn’t believe my eyes. The spreads were enormous — at least fifty percent or better. I said to George, ‘How could the bid for Arncliffe National be twenty-five cents and the offer be fifty cents? My commission can’t really be a quarter a share, can it?’ to which he replied, ‘Sure, why not?’
“I said, ‘Well, let’s just suppose a client purchases a quarter million dollars of Arncliffe National’ — that was an average trade at LF Rothschild — ‘Would my commission really be $125,000?’ I asked.
“‘Yeah, in theory,’ he answered, ‘but it doesn’t really work that way, because no one puts that kind of money into penny stocks.’
“‘Why not?’ I asked.
“‘Well …’ he replied, not that confidently, ‘we… uh … we don’t call people who have that kind of money. We call working-class people.’
“‘Really?’ I said. ‘Why call people who don’t have money to invest in the stock market? It seems illogical.’
“‘Yeah, maybe so,’ he replied, ‘but rich people don’t buy penny stocks.’
“‘Why not?’ I asked for the second time, to which he started hemming and hawing. He really had no answer other than telling me just to trust him, which I did. In retrospect, I think I was too beaten down to argue, because under normal circumstances I would have debated him until I was blue in the face. In any case, I decided to take his words as gospel and go along with the program. I took a seat next to Chris Knight and then wrote a script for a cosmetics company called Arncliffe International.”
“Why’d you choose that one?” asked OCD [the FBI agent who caught him].
I shrugged. “It seemed like the dog with the least fleas. I mean, they had no real sales to speak of and there were something like fifty million shares outstanding. But, on the positive side, they’d just landed Macy’s as a customer, which I knew would sound good in a sales pitch. That, and the president of the company had once been a vice president at Revlon, and I knew that would sound good too.
“Anyway, when I finally was done with the script, I remember feeling very impressed with it. I’d made Arncliffe National sound like IBM or at least the next Revlon, and I hadn’t even lied that much. Of course, I’d omitted some material facts — meaning, information that the client really deserved to know to make a decision — but all in all I hadn’t really violated any securities laws.”
The Bastard shook his head gravely. “Material omissions are violations of securities laws,” he snapped.
“Yeah, I’m aware of that now. In fact, I was aware of it then too, although I knew it would be difficult to prove. See, what’s material and what’s not material is somewhat subjective. Don’t kid yourself — on Wall Street, material omissions are the rule rather than the exception. And that’s at big firms as well as small ones.”
A few moments of silence passed.
“In any event, as fabulous as my Arncliffe script was, Chris Knight hadn’t grasped the true beauty of it. ‘You’re wasting your time with that,’ he said, pointing to my script. `You don’t need a script to sell stock. You just swear to the clients that the stock is going up and they buy from you.’
“‘Yeah, well, thanks for sharing,’ I said, and then I picked up the phone and started dialing. I was using leads George had given me, which were actually return postcards from people who’d responded to a mass mailing. On the front of the cards was some cheesy sales hype along the lines of Make a Fortune in Penny Stocks, and on the back there were people’s names and phone numbers. They seemed like total dunk shots, these leads. I mean, what better lead was there than someone who’d filled out a postcard and dropped it in the mailbox?
“So when I got my first prospect on the phone — some friendly Southerner named Jim Campbell — I had reasonably high hopes. In a totally upbeat tone, I said, `Hey, Jim! Jordan Belfort calling from the Investors’ Center! How are you today?’
“‘Uh, I’m awe right!’ he answered. ‘How you doin’?’
“‘Oh, I’m great. Thanks for asking. Now, Jim, if you recall, about a week ago you mailed me a three-by-five postcard, saying you were interested in investing in penny stocks. Does that ring a bell?’ And after a few seconds of silence, Jim finally said, ‘Oh, yeah, I guess I did that. I mean, it sounds like sumthin’ I’d do!’
“I remember thinking, Good God! He was so eager! So incredibly receptive! It was mind-boggling. I maintained my composure and said, ‘Great, Jim. Now the reason for the call today is that something just came across my desk, and it’s the best thing I’ve seen in the last six months. If you have sixty seconds, I’d like to share the idea with you. You got a minute?’ And Jim said, ‘Sure! Fire away!’ With that I rose from my chair and prepared to give Jim my shpil. I remember catching a glimpse of Chris, who was sitting in his chair, watching me, and sipping a bottle of Evian.
“Into the phone, I said, `Okay, Jim, now, the name of the company is Arncliffe National, and it’s one of the fastest-growing companies in the cosmetics industry. All told, it’s more than a thirty-billion-dollar industry, cosmetics, growing at twenty percent a year. And it’s virtually recession-proof — yielding consistent growth in good times and bad. You follow me so far?’
“‘Yeah!’ said an impressed Jim. `I follow you.’
“‘Great,’ I said, and I went on about giving him some very loose facts about Arncliffe — the names of some of the products they sold, where the company was headquartered, and then, finally, touched on the contract they’d just signed with Macy’s. Then I said, ‘But as good as all that sounds, the most important thing in any company is management. Wouldn’t you agree?’
“‘Yeah,’ answered Jim, ‘of course.’
“‘Good,’ I said shrewdly, ‘and in the case of Arncliffe National, management is blue chip all the way. The chairman of the board, a man named Clifford Seales, is one of the most astute minds in the cosmetics industry. He was a former VP of Revlon, a key player over there. And, with him at the helm, Arncliffe can’t go wrong.
“‘But the reason for the call today, Jim, is very specific: Clifford Seales is about to go down to Wall Street to tout his stock, and he’s going on the heels of staggering sales growth and a major contract announcement. He’ll be going to banks, insurance companies, pension funds — the institutional players. And you know what they say, Jim: Institutional money is usually smart money, and even when it’s not, it’s not enough to fuel the market anyway. You follow me?’
“‘Oh, yeah!’ said Jim, ‘I sure as hell do!’
“‘Good, Jim. Now, the stock is trading at only fifty cents a share right now, which is ridiculously cheap, considering the company’s future. And the key to making money here is to position yourself now, before Seales goes to Wall Street and meets with all the fund managers and pension managers, because once he does that, it’s too late.’ I paused for effect. ‘So what I’d like you to do is this, Jim: Pick up a block of one million shares of Arncliffe National’ — and splat went a mouthful of water from Chris Knight’s mouth. Then he started choking, and then he popped out of his chair — Evian in hand — and ran toward George’s office. I shook my head in disbelief and continued with my sale, noticing for the first time that the other brokers were gathered around me. ‘It’s a cash outlay of only half a million dollars,’ I said casually, ‘and it’s not a question of funds today or tomorrow, Jim; you have a week to pay for the trade. But, believe me,’ I said, lowering my voice to just above a whisper, ‘if you position yourself now, before Seales comes down to Wall Street, the only problem you’ll have is you didn’t buy more. Sound fair enough?'”
“You asked the guy for half a million dollars?’ asked OCD, chuckling.
“Yeah, I did. That‘s what they used to do at Rothschild. so it just sort of slipped out. But, meanwhile, as I was waiting for Jim to respond to my half-million-dollar request. George came running out of his office, with Chris Knight in tow. I heard George muttering, ‘Someone go get a tape recorder! Hurry up! Who’s got a tape recorder?’ And then Jim said, ‘Uh, I’m sorry, Jordan. but I think you got the wrong guy. I work in a hat factory. I’m a machine operator. I only make thirty thousand a year.” I paused for a moment. “Anyway, not to belabor the point, I ended up closing Jim for ten thousand shares, which was a five-thousand-dollar trade, which was one of the biggest trades in Investors’ Center history. I was about to learn that Investors’ Center was no small-time operation. They employed over three hundred brokers and had over thirty offices — all of them small, and all of them just as mismanaged as this one.
“But getting back to Jim Campbell for a second, I’d convinced him to buy the stock with the money in his IRA, which was the only real savings he had.” I paused and let out a troubled sigh. “And if you’re wondering if I felt guilty about that, the answer is yes: I felt absolutely horrendous. Despicable. I knew he shouldn’t be investing his IRA in a penny stock. It was much too risky. But I was so utterly broke at the time that the words rent money, rent money were playing in my head like a broken record. In the end, they drowned everything else out, including my conscience.
“Then, the moment I hung up the phone, I was instantly awash in the admiration of my peers — quashing any residual doubts. I remember George saying to me: ‘Where did you learn to sell like that, Jordan? I’ve never heard anything even remotely like it! It was amazing!’ Of course, I won’t deny that I relished every last drop of his admiration. And, not surprisingly, the rest of the brokers were equally taken with me. They were all staring at me wide-eyed, as if I were a god. I felt like a god at that moment. The dark cloud that had followed me around since the meat business had finally evaporated. I felt like a new man, or, better yet, I felt like myself again.
“Right then and there, I knew that my financial problems were finally over, and I knew that Denise [his wife at that time] would finally have the things we’d talked about and dreamed about during the dark days. A world of infinite possibility had suddenly opened, a world filled with a thousand opportunities. And from there things moved very quickly, starting when George approached me a few weeks later, asking me to train the salesmen.”
— end of book excerpt.
Names have been changed in the book (probably that company name too).
While that answers my questions, it’s still unsatisfying.
I’d still like to know:
1) Why did Belfort write a sales script?
2) How long did he take to write it?
3) While he was unemployed, had he thought at all how he’d handle selling stocks if he got the chance again?
The entire movie scene and real-life account confirms this:
Belfort, of course, went on to pervert his opportunity into criminality.
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