Understanding Gordon Gekko’s Financial Strategies in 'Wall Street'

In the iconic 1987 film Wall Street, the character of Gordon Gekko, portrayed by Michael Douglas, emerges as a complex figure who embodies the excesses and greed of the 1980s financial market. Gekko is often misinterpreted as a fund manager or corporate raider, but his portrayal is much more nuanced than that.

Character Portrayal and Real-World Context

Gordon Gekko is a fictional character created by Oliver Stone for the film Wall Street. However, the character is inspired by real figures such as Michael Milken, Ivan Boesky, and William Donaldson, all of whom were key players in the corporate raiding and leveraged buyout (LBO) culture of the 1980s.

Corporate Raiders vs. Fund Managers

Gordon Gekko, as a corporate raider, operates in a different realm compared to a fund manager. Corporate raiders, such as those popular in the 1970s and 1980s in the USA, UK, and Australia, had a unique modus operandi. They spotted companies that were overvalued or in financial trouble, bought them cheaply, and either closed down parts of their business or restructured them to profit from their assets. This often resulted in significant job losses but not necessarily a complete shutdown of operations.

Notable Corporate Raiders

During the era of corporate raiding, key players included Jim Slater in the UK, Robert Holmes a Court in Australia, and Victor Posner, Carl Icahn, and others in the USA. Many of these raiders gained their capital through investment banking firms like Drexel Burnham Lambert, which helped raise the funds necessary for acquisitions and restructuring.

Financial Strategies and Returns

The film portrays Gekko as a dazzling financial genius who leverages his $100 million to rapidly grow it to $1 billion within a few months. This scene has captivated audiences but it raises questions about the plausibility of such returns.

Critical Analysis of Returns

Throughout the 1980s, corporate raiders, while achieving significant returns, generally required years to achieve their goals. Gekko, operating in London, would face additional challenges and costs, which could easily exceed $500,000 to $1 million. These include legal and administrative expenses, setting up proper corporate structures, and other operational costs within a short period.

Even the legendary traders who consistently performed well in the market, such as high-frequency traders (HFT), would find it difficult to achieve such high returns. A high-frequency trader might make 1-2 returns per day, assuming average volatility of about 30%. To achieve the rate of return shown in the film, Gekko would have had to leverage his fund significantly and be right on the market every single day for six months. This level of consistency is extraordinarily rare.

Role of Capital

The film does not explicitly address whether Gekko raised capital from others to achieve his massive returns. In reality, many large-scale acquisitions and corporate takeovers required significant capital from multiple sources, including banks and investment funds.

Conclusion

While Gordon Gekko in Wall Street is a compelling and often controversial character, his portrayal as a fund manager with such rapid and substantial returns is an exaggeration. As a corporate raider, Gekko's actions align more closely with historical figures and practices, although the film creatively manipulates these elements for dramatic effect.