3 Best Stock Market Movies for Beginners

Everybody in this world wants to understand the stock market basics, but no one knows where to start (including me). Well, while thinking on and on about this, a question popped inside me “Why don’t you watch stock market movies to get started?”. That was an awesome suggestion, isn’t it?

Why not? I should start off somewhere and why not from movies? I decided to give it a try, and you know what? It worked 🙂

I started off with these stock market movies, although I haven’t completely understood the market, I’m sure I took the right step towards understanding the stock market basics.

Wall Street (1987)

An awesome old stock market movie with Michael Douglas as Gordon Gekko. This was the first movie which gave me a picture of how wall street is 🙂

Stock Market Basics I learnt from this movie:

The ‘Money Game’ exists everywhere

The top of the pyramid is filled mostly with greed, spying, betrayals and above all these ‘Money game’.

I’ve come across work-place politics, politics inside relationships but haven’t even dreamt about the politics at the country level. Gosh, politics is a part of life and we should be wise enough either to play with it or to be away. Being so innocent tempts other money gamers to mock with us.

Initial Public Offering

A stock is a piece of ownership in a company. If you buy a small portion of stock or shares, you own a small portion of the company.Any company could go public and raise huge investment it needs by issuing stocks and bonds. The first time it goes public and releases stocks or bonds is called ‘Initial Public Offering’.

Common stocks

Common stock holders have voting rights (also receive profits as dividends on their stock) to choose the Board of Directors – those were the people seated in Annual stock holder meeting of Tedlar paper. Gordon gekko bid a tender offer to buy all the common stocks of the stock holders seated there so he could take complete control over the company.

Common stock holder stand at the end of the queue to get the remaining of a company incase of bankruptcy.

Tender offer

A majority shareholder could bid a tender offer to buy the remaining common stocks at a price little more than the current share price. This is to take control over the company or merge it with the acquirer’s.

Wall Street: Money never sleeps!

Again an awesome movie with Michael Douglas as Gordon Gekko. The movie is a continuation of The Wall Street, the gordon gekko’s policy “Greed is good” is true in this new era. Everybody is greedy at one point or another.

Stock Market Basics I learnt from this movie:

Moral hazard

Taking too much risk thinking that there is an insurance to back up. For e.g., not installing a fire alarm thinking that there is a fire insurance to back up

In the movie, during the heated discussion at the federal bank of New York, Bretton raised a word “Moral hazard” against Lou Zabel which means that Lou took too much risks thinking that the Federal Bank could compensate the loss if incurred.

Pump or Dumping the stock

It’s a scam where the investors spread a rumour about the ‘next big thing or event’ about a company and make the stock value to rise, and once stock value is raised, the same investor sells it. Dumping is spreading a false rumour about the company and make the stock values to plummet.

Bailing out a Company from Bankruptcy

In the movie, Bretton gave an offer to Lou Zabel to support his failing company “Keller Zabel Investments” from going bankrupt.

But there is a catch there, he offered only $3 a share not to mention that Keller Zabel share was trading at $79 per share a month before.

Bretton was so greedy in this situation – if he offers more money per share, then Lou would sell only limited shares and may recover from bankruptcy completely; so he indirectly forced Lou to sell more shares by offering just $3 a share, this way Bretton and his partners could own Keller Zabel somehow.

So, bailing out means supporting a failing company from being bankrupt. The support can be given in the form of loans, cash or even buying stocks from the company.

The Big short

Well, I’ll have to definitely say that this movie may be Greek and Latin when watched for the very first time. I watched it thrice to understand what’s happening, but the movie is worth the watch.

The movie is about the financial crisis that happened in 2008, and clearly tells why and how we face job loss and how economy is working.

Stock Market Basics I learnt from this movie:

Mortgage-Backed Securities

Mortgage Backed Securities (MBS) are a set of bonds available in the market for investors to buy. Basically, the bonds are backed by mortgage securities – here’s a simple scenario

Prabha, Ramya and Anand buys a home or mortgage loans from Bank X, they agreed to pay interest and principal every month on time. Now, Bank X already have a customer ‘Krishna’ who has more money and is interested in investing somewhere and make more money out of his investment.

Now Bank X decided to link Prabha, Ramya and Anand with Krishna. Krishna sponsors them to build or buy homes with 2% interest on his investment, and Bank X acts as middle men.

Krishna earns interest on his investment to 3 people via Bank X, and Bank X also gets commission acting as middle men. Selling the loans of Prabha, Ramya and Anand in the form of legal papers is called Mortgage Backed Securities (MBS). So if Prabha doesn’t pay her loan, Krishna gets her newly bought home which was given as security.

Sub-Prime loans

The loans that are offered to people who doesn’t have a proper income source or who face difficulty in repayment are subprimes. Normally, banks contact credit rating agencies to analyse an individual’s credit history to judge whether a person is eligible for the loans.

Credit Default Swaps

Based on the movie, the Credit Default Swaps (CDS) is kind of insurance premium that a buyer of Mortgage Backed Securities (MBS) pay to the banks, to protect the buyer himself from the mortgage defaults. In case the MBS fails due to repayment defaults, the bank has to take up the risk and return all the money the buyer has invested.

There is a catch here, the buyer has to mention a term and if the defaults doesn’t happen in that term, the buyer has to pay the premium till the maturity which is a loss.

The clever minded “Michael Berry” in this movie analysed the market very well, and was pretty sure that the market is going to fall. So he decided to take up the insurance (CDS) against the falling market and make money out of it.