The Lessons From Trading Places

Recently I spoke to a college group and was shocked to learn none of the students had seen the movie Trading Places. Not only is this a holiday classic, made so because Dan Aykroyd takes to dressing up like Santa Claus, but there’s also a lesson to be learned. There is nothing better than learning a lesson and having fun in the process. 

For those few that have not seen the movie, basically Eddie Murphy and Dan Aykroyd hook up with the Duke Brothers, who believe they have acquired an advanced copy of a government report on the pending orange crop. Our heroes are able to acquire the report first and hand off a report stating the opposite of the real report to the Duke Brothers. 

Due to the report they receive, the Dukes believe the orange crop has been damaged by cold weather which will result is a lower supply of oranges this growing season. Less supply means higher prices for oranges. However, the reality is there has been no damage to the orange crop and the result is going to be lower orange prices. 

There are some nice realities to the trading scene toward the end of the movie. For instance, the mad rush to the pit as traders show up just before the market opens. Also, fellow Options Institute instructors thought it was very impressive how quickly Eddie Murphy picked up floor trading along with checking trades at the end of his first (and last) day on the floor.

The markets open and participants see the Dukes lurking around as their broker (who also is the voice of Miss Piggy) starts buying Frozen Concentrated Orange Juice Futures. Other traders believe the Dukes “know something” and start buying as well. Eventually Dan Aykroyd and Eddie Murphy start selling. All goes quiet the true crop report is read and the market tanks as traders erupt into a frenzy of selling. Aykroyd and Murphy’s short sell nets them millions of dollars and the Dukes are ruined.

What’s the lesson? Despite short term moves, the markets eventually follow the fundamental laws of supply and demand.

And the bonus lesson? – Leverage – when it is good, it is really good, when it is bad, it is really bad.

The final lesson (from Peter Lusk) – When the markets are closed the machines do NOT get turned back on for anyone….