Talk to me like a small child or a golden retriever...

One of my all time favorite movies is “Margin Call”. If you , haven’t seen it, it takes place on one night during the great financial crisis way back in 2008.

From what I can tell, it’s based on what Goldman Sachs did to save itself and start the process as one of the biggest contractions ever.

While the movie isn’t based on fact, it’s a complete fiction (unlike “The Big Short”), it is far more interesting to me. And the movie feels more like a play than a movie. The whole movie essentially takes place in the boardroom and office building. There are a few shots outside, but not much.

And it’s a star-studded affair with more actors than I can count. I’ve probably sent he movie about 20 times, I can’t get enough.

But my favourite scene is the boardroom scene when John Tuld flies in on his helicopter at 3:30 in the morning. Now, the John Tuld character is interesting in its own right. The character is based on Dick Fuld (not much of a name change) who was the head of Lehman Brother’s before it folded. And, boy is he a character and played marvellously by the eternal Jeremy Irons (who I first saw in Die Hard with a Vengeance, my favourite Die Hard movie, if you’re asking).

Let me give you the scene and then I want to deconstruct it for you:

Peter is the analyst who uncovers the subprime mortgages they hold on their balance sheet are a best dog shit and worthless.

JOHN TULD

How old are you Mr. Sullivan?

PETER

I’m twenty-seven sir.

JOHN TULD

Please call me John.

PETER

Yes sir.

JOHN TULD

So Mr. Sullivan why don’t you tell me what you think is going on here, and please speak as you might to a young child or a golden retriever, I didn’t get here on my brains I can assure you of that.

PETER is very nervous.

PETER

Well, sir. As I guess you may or may not know I work for Mr. Rogers here as an associate in the risk assessment and management office at MBS

JOHN TULD

Now you lost me at M...

PETER

Sorry...

JOHN TULD

I was joking Mr. Sullivan.

PETER

Yes... Well as you probably know over the last 36-40 months the firm has begun packaging new MBS products that combine several different traunches of rating classification in one tradable security. This has been very profitable as I imagine you noticed.

JOHN TULD

I have.

PETER

Well the firm is currently doing a considerable amount of this business every day. The problem, which is I guess why we are here tonight, is that it takes us... the firm... almost a month to layer these products correctly thereby posing a challenge from a risk management standpoint.

JOHN TULD

And Mr. Sullivan that challenge is?

PETER

We have to hold these assets on our books longer than we might ideally like to.

JOHN TULD

Yes.

PETER

But the key factor is these are essentially just mortgages, so that has allowed us to push the leverage considerably beyond what you might be willing, or allowed to do in any other circumstance, thereby pushing the risk profile without raising any red flags.

JOHN TULD

And how far have we pushed that profile tonight Mr. Sullivan?

PETER

We have pushed it to 1.215 Trillion dollars... at MBS alone.

JOHN TULD

Give or take.

PETER

Give or take.

JOHN TULD

Now Mr. Sullivan what I am guessing, and give me a little rope here, what I am guessing that your report here says is that considering the, shall we say bumpy road, we’ve been on the last week or so that the numbers that your brilliant coworkers up the line ahead of you had come up with in the past don’t seem to make much sense anymore considering what’s taking place today?

PETER

Actually not taking place today but what’s already taken place over the last two weeks.

JOHN TULD

So what you’re saying is it’s already happened?

PETER

Sort of.

JOHN TULD

And Mr. Sullivan what does your model say that means for us here?

PETER

Well, that’s where it becomes a projection. But...

PETER looks down at JARED for approval to go forward.

JOHN TULD

You’re speaking with me Mr. Sullivan.

PETER

Well... sir... if those assets were to decrease by just 25 percent, and remain on our books... well... that loss would be greater than the current market capitalization of this company.

The room goes silent.

JOHN TULD looks at PETER long and hard. He then stands up and goes over to the window and looks into the city.

JOHN TULD

So what you’re telling me Mr. Sullivan is that the music appears to be about to stop and we are going to be holding the biggest bag of stinking shit ever assembled in the history of capitalism?

Everyone looks back at PETER.

JOHN TULD (cont’d)

Mr. Sullivan?

PETER

Well sir, I’m not sure I’d put it that way but let me clarify using your analogy, what this model shows is the music, so to speak, just slowing, if the music were to stop, as you put it, then this model would not be even close to that scenario. It would be considerably worse.

JOHN TULD

Well let me tell you something Mr. Sullivan. Do you want to know why I’m sitting here in this chair with you all, why I get the big bucks, so to speak?

PETER

Yes.

JOHN TULD

I’m here for one reason and one reason only.

JOHN TULD (cont’d)

I’m here to guess what the music is gonna do a week, month, a year from now. That’s it, nothing more....... and I’m afraid... standing here tonight... that I don’t hear... a... thing... just silence.

I know that is a lot, so if you prefer to watch the scene, you can see it here:

Not only is it a great scene, but it’s worth studying in detail for anyone who is or wants to work with business owners. I could probably go on for 50,000 words on this scene, the intricacies of the characters, and how Mr. Tuld is exactly like the most successful business owners I’ve ever met.

And actually, within the span of about a 5-minute meeting in the movie, Tuld goes from no action to selling all $1.2 Trillion of these assets. This is a man or action.

But this same thing happened to me a few years ago in a meeting when a business owner was ready to write me a cheque for nearly $200,000 of premium 5 minutes into the meeting, which if you’ve been with me for a while, I’ve told that story.

All because he saw the problem and was ready to take action.

First off, one of my favorite parts is how he starts the meeting.

“Speak to me as you would a small child or a golden retriever”. Sounds so patronizing, but what Tuld is saying. NO fancy words. NO fancy language. NO weird sales language. Give it to me straight.

Also within that span, he is ready to make one of the most drastic steps in the makeup of the balance sheet. These are monumental changes, but he is willing to make that change.

As he says, “We do this so that we can survive. Many won’t”. Those were true words, many of the investment banks including Lehman went belly up.

Business owners who have built their businesses from scratch often understand this very acutely. Change is necessary so that you can survive.

And finally, he was able to make this decision in record time. Many times, people in the financial planning world want extended timelines for no other reason than someone who isn’t willing to make a decision.

I’m not saying people should make hasty decisions. But when all the facts are laid out, real business people can make decisions pretty quickly, especially if they own the company. It is their baby.

I encourage you to watch Margin Call, but not only watch it, study it. Get a notebook and pen and start writing down what you see. Because if you want to improve your insurance planning practice, you must understand people better.

And we already have all the characters out there who are willing to give you the deep dark secrets if you open your eyes.

There are countless Tuld’s out there running manufacturing businesses, service businesses and the like.

One more thing that Tuld said in the movie about winning:

And as he says in the movie, he isn’t smarter and he doesn’t cheat, so it’s just so much easier to be first.

I think this logic is on point for what we do. You can try to outsmart the markets and get better returns. But most people can’t.

You can try to abuse the tax code or some other form of cheating or quasi-cheating. But that’s a fool’s errand, as you’ll eventually get caught.

It’s so much easier to just be first. Or, as I’d put it to people. Taking care of your risks today is much cheaper than doing it tomorrow.

It's such a great movie with so many lessons to teach you. By the way, it’s on Netflix at the moment if you’re inclined.

Until next week,

Andrew