You Must Watch this Netflix Series — ‘Madoff: The Monster of Wall Street’ and the Timeless Lessons for all of Us
I bet you’ve all heard of Bernie Madoff aka one of the world’s biggest fraudsters who managed to swindle $64 billion from investors!
He managed to do this for the best part of 2 decades until it all came crashing down in ’08 like a gigantic pack of cards.
Netflix recently made a short, 4-part docu-series called: ‘Madoff: The Monster of Wall Street’.
In this financial thriller, you’ll watch and listen to the story of how one man engineered one of the biggest Ponzi schemes in Wall Street’s history.
I highly recommend you tune in for some educational bingeing! The lessons in it are timeless. Sadly, he isn’t the first fraudster that walked on Wall St nor will it be the last.
These things crop up all the time (cough, cough FTX — read about that spectacular scam here) especially during bull markets with cheap money floating about.
It’s times like these that diligence basically goes outa the window. The SEC snooped around Madoff’s biz but smelt nothing dodgy. They got a clean bill of health which was all the confidence investors needed.
From then on, his Ponzi scheme (basically taking money from later investors to pay off earlier investors) grew exponentially until it became a giant, so big that it practically gobbled up buckets of wealth from all over the place.
Lesson #1: Don’t break the cardinal rule of investing
I watched how principles of investing went out the window.
You know that you should diversify your money across a range of assets and so on. But many folks who invested with Bernie chucked everything they had at it.
Many pensioners were left penniless as were countless charities and universities who had all given large sums for him to manage on their behalf.
It’s so sad how many people lost out as a result of his elaborate scheme. But they broke the cardinal rule of investing: not diversifying. They invested all their money not just in one asset class (like stocks) but in one guy! Literally.
When my investment account hits £85k I will open up a second account with anotehr platform. This is because the FSCS will only cover me for investments up to that amount.
After that point, the risk is all on me.
Same with a bank account. That’s why people with high net worths (> £1 million) have multiple bank accounts.
But folks who danced with Bernie forgot all about it. Or they ignored it. I guess the returns were too delicious.
He managed to give his clients returns of ~10% which is 3% higher than the market average. His returns were big enough to capture interest but not too big that it would look suspicious. Genius, no?
Fascinated by these “guaranteed” returns, clients kept pouring in. The money literally didn’t stop flowing in.
In the series, you’ll see how one big-shot hedge fund invested with Bernie. They of course had to do some DD and when they kept prodding, Bernie said something like “if you don’t understand it, you shouldn’t be investing here”.
That was all he needed to say for them to be begging, desperate to hand over their clients’ money.
He understood human psychology and used it to his advantage
Hedge funds receive an annual management fee (usually of about ~2%) from their investors in addition to their performance fee of ~20% and if they invest in another fund the first fee is split between them and the fund manager but Bernie did something so brilliant.
Instead of splitting the management fee, he let the hedge funds keep the whole lot. Less DD + more money = no brainer!
Madoff knew how to manipulate people and make them want him. Turning people away from his fund only made them want it even more. So they pledged even bigger sums.
People would come to him asking to invest $1mil (Bernie probably thought that’s way too small) so he said we’re not open to business. Yeah right.
This only made the rich clients pledge $10mil or more. Desperate for an in. They didn’t wanna be that loser who wasn’t rich enough to be part of Bernie’s fund.
So they pledged more and more. Just the way Bernie wanted it. What a mastermind.
Watch out before handing over your fortune
There lies stark lessons on giving over your money for someone else to manage. A great financial adviser will give you autonomy over your decisions.
They should empower you to make the right financial decisions for your unique circumstances.
They should never make you feel inferior or intimidate you with jargon.
The financial advisors at my firm always start by asking the client their hopes, dreams and aspirations are. The decision-making ultimately comes from them.
The client pays for tailored advice and act upon it by being totally informed. Advisors don’t treat them like kids don’t understand something. It’s a partnership. Or at least it should be!
His tactics of intimidation worked like a dream
But Madoff was the opposite.
When clients asked questions, he intimidated them. He used jargon and made sure that his clients had no access to digital records of their annual reports and he was often late in reporting the trades.
Clients didn’t dare question his tactics. This was a massive red flag.
If your advisor doesn’t answer your questions or buries you with complex stuff, you run the other mile!
Frauds on this scale grow massively during bull runs but when the music stops, that’s usually when they get exposed. In ’08, with the collapse in real estate, spreading like wildfire across the economy, people wanted out.
Except there wasn’t much left to take out. Madoff’s fund was a gigantic hole. People lost everything.
So if you’ve some time for a Netflix binge, give it a watch! It’ll open your eyes. Big time.
And you’ll learn a thing or two from this financial serial killer! Though I hope I haven’t given away too much. It really is a cracking series.
Happy Netflix-ing!
Disclaimer: This is not investment or financial advice. It is my opinion only. This is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment
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