February 1, 2022

6 Investing Lessons From the TV Show Billions

The shenanigans of its scheming characters may seem absurd, but they have real-world applications.

Reported by Larry Light

Art by John Cuneo

In the financial community, one guilty pleasure is the hit Showtime series Billions, which revolves around the machinations of an unscrupulous hedge fund, Axe Capital. And although it seems far-fetched, the TV program has a few lessons for finance folks, mostly warnings about possible pitfalls.

Sure, Billions is hardly a tutorial for sophisticated Wall Streeters. Let’s face it: This is an over-the-top melodrama that has little bearing on the day-to-day working lives of asset owners or managers. Some investment pros think the program is simply too ridiculous to bother with. Yet others see its plots as parables of what to look out for—and they get entertained along the way.

Robert Hunkeler, International Paper’s vice president of investments, is a non-fan, saying: “I watched the first couple of episodes and concluded it was Kabuki theater on investing, so I stopped watching.”

But to Tony Waskiewicz, former CIO of Mercy Health and now president and CIO of Investment Office Resources, the show is a cautionary tale, as its characters often run afoul of the law. “Making returns is important, but how you make those returns really matters,” said Waskiewicz, who enjoys the show. “And this is why values-based and mission-aligned investing are important to institutions.”

Billions, which just started its sixth season, previously turned on the adventures of hedge fund kingpin Bobby Axelrod, known as Axe, who became a billionaire via sharp elbows and dulled ethics. Insider trading is his forte. (For those who haven’t watched it, some spoilers lie ahead.)

Axe, played by Damian Lewis (Homeland), was written out of the series at the end of season five, after the hedgie flees the country rather than get arrested. (Lewis the actor wanted to spend more time with his family in his native Britain, instead of working in New York, where the show is set.) In a way, Axe’s arc is tragic, as he is too cocky to see he can’t live such a risk-filled existence untouched by disaster.

Axe’s arch-nemesis, Chuck Rhoades, the New York state attorney general, has long strived—often with his own dubious tactics—to send Axe to the clink. Played by Paul Giamatti (Sideways), Chuck manages to get the goods on Axe, only to see him escape to Switzerland. Axe’s legal plight allows another enemy, fellow financier Mike Prince, to gain ownership of Axe Capital. Portrayed by Corey Stoll (House of Cards), Prince is poised in the sixth season to be Chuck’s new quarry.

Part of Billions’ allure is the voyeuristic pleasure of viewing the elaborate lifestyles, real estate, and power that the very wealthy possess, a quality the show shares with another finance-oriented potboiler, HBO’s Succession.

There is a comical aspect to all this wanton materialism. At one point, Axe’s right-hand man, Wags, snags the last burial plot in Manhattan. After a lot of finagling and at great expense, he bests another seeker of this macabre prize. With the gravesite secured, Wags (David Costabile) lies down on it and, with a big smile and hands clasped behind his head, beholds the stars and says, “Ahhhhhhh.”

Criminal behavior is at the core of these wheeler-dealers’ exploits. As the chieftain of his hedge fund, Axe himself has always sought secret information so he could earn a pile via insider trading. Although competitor Prince is outwardly altruistic, he at times acts as ruthlessly as Axe. Many fans expect Stoll’s character to shape-shift into Axe 2.0 as the season progresses.

At one point, Axe asks a meeting of his underlings for investing ideas. One poor schnook suggests Apple stock. Axe berates him for such a prosaic suggestion, clearly preferring a tip on, say, a confidential deal he could horn in on. Well, Apple was trading at around $30 at the time. If Axe had taken the subordinate’s advice, his investment would’ve increased about sixfold. In the series, Axe’s cleverness occasionally backfires, to a cataclysmic effect.

Some of the show’s lessons:

Always do your due diligence. Axe harbors a hankering to own a bank, as it would expand his access to capital. But he finds himself thwarted by Chuck Rhoades and regulators. Looking for a way around them, Axe finds a legal cannabis dealer who also has control of a bank and wants to sell.

In his rush to scarf up the property, he neglects to ensure that his target is clean. He finds out too late that the dealer also sells weed on the black market for extra cash. Result: Axe is deemed part of this corrupt enterprise, with a warrant for his arrest. (Which is why he sells his firm to Prince and beats feet for Switzerland.)

In fact, in real life, failure of due diligence happens more than you’d think. Recall how Bank of America acquired beaten-down Countrywide Financial during the 2008 financial crisis. Much to BofA’s horror, Countrywide was riddled with bad subprime loans, which almost destroyed the major banking company.

Never get personally attached to an investment. Axe has a romance with a female version of himself, Rebecca Cantu (Nina Arianda). They do all kinds of deals together, raking in vast sums, and even talk about having children. But Rebecca has a soft spot for Saler’s, a failing department store chain she has a stake in. She hopes that she and Axe can find a way to save it.

Axe, though, concludes that the company is worth more dead than alive. He maneuvers to wrest the company away from Rebecca and liquidate it. In cold-blooded business terms, Axe is right. Rebecca couldn’t see that and suffers for her myopia.

Be careful who you hire. Axe enlists the genius Taylor Mason (Asia Kate Dillon) to add quantitative analysis to his operation. Instead of being a grateful protégé, however, Taylor has a sense of intellectual superiority over everyone at Axe Capital, and with some justice.

Again and again, Taylor conspires to put one over on Axe and even forms an alliance with Chuck. But Axe, willing to overlook the treachery out of high regard for Taylor’s skills, finds a way to in effect blackmail Taylor into working for Axe Capital again. Sure enough, Taylor is part of a cabal that entraps Axe in the fateful cannabis-bank deal.

Past decisions can come back to haunt you. Rival Mike Prince makes a big noise about being an ethical soul, above the chicanery of Bobby Axelrod. As the two clamber for advantage, Axe finds out that long ago Prince screwed over his best friend and business partner to wrest control of their company. The partner died a broken man.

Axe convinces the dead partner’s grieving mother to go on TV and denounce Prince. This costs Prince a batch of investors, who pull out their money, and also what he most desires, a ceremonial ambassadorship to Denmark.

Distressed debt is way risky. This asset class is finding favor nowadays with some institutional investors. Of course, come a recession, some of these positions could sour, big-time. At a nice discount, Axe buys up the municipal bonds of a small upstate New York town called Sandicot, figuring that he can muscle through a casino license for the town and score a bonanza.

Alas, the license doesn’t come through, thanks to Chuck. As a result, Axe’s investment is rendered worthless. The town’s residents are worse off than ever, not that Axe cares.

Merger arbitrage is maybe even riskier. The proposition is simple: Buy stocks in a company you think will be a merger target, then cash in when the shares jump on the deal announcement. That’s assuming there’s a deal struck, to be sure. To play in this arena requires nimble footwork.

On an illicit takeover tip, courtesy of two Axe Capital underlings, Axe eyes buying a piece of a power company called Lumetherm. But then he figures that the merger artist who wants to buy the rest of Lumetherm, aka the parts he doesn’t own, a guy named Scott Kazawitz, is up to no good.

Axe suspects that Kazawitz really is using the planned transaction as a ploy to unload his own holdings in Lumetherm, and wants to do it while temporarily pumping the company’s stock price through merger rumors. Rather than buy Lumetherm stock, Axe shorts it, and comes away with a bundle once the stock collapses.

A fat lot of good that does Axe once he must become a fugitive abroad. The wages of his sins are considerable: He must leave behind the woman he loves, his status as a social lion and Wall Street titan, and the adulation of many. If only he’d seen the signs, right? If only he’d learned from his mistakes. Still, given the chance to do everything over, it’s doubtful Axe would have behaved differently, due to his ego and immunity to self-reflection.

Tough break for Axe. But fun for us. And maybe even instructive.