After watching Nick’s new video on this book, I decided to find it on my bookshelf and have a long-awaited reread. This was one of the first books I read when I had more of a trader’s mindset.
Mr Darvas was a dancer that managed to turn $10,000 into $2 Million in 18 months. He actually started with a Canadian mining stock. I’m reading from a 1961 hardback version which I believe is a first edition. Here are my notes on the main points I found insightful.
“I just jog along with the trend trailing my stop loss insurance behind me”.
“There are no good or bad stocks, there are only rising and falling stocks”.
“I can become a diagnostician but I can never become a prophet”.
For people of modest means, an investment should be defined as something that can be realised quickly and without loss.
When financial tipsters advise the small operator to buy a stock, those professionals who bought the stock much earlier on inside information are selling.
Insiders might know all about their company, but they did not know about the attitude of the market in which their stock was sold.
1. I should not follow advisory services. They are not infallible.
2. I should be cautious with brokers’ advice. They can be wrong.
3. I should ignore Wall Street sayings, no matter how ancient and revered.
4. I should not trade ‘over the counter’ – only in listed stocks where there is always a buyer when I want to sell.
5. I should not listen to rumours, no matter how well founded they may appear.
6. The fundamental approach worked better than gambling. I should study it.
7. I should rather hold on to one rising stock for a longer period than juggle with a dozen stocks for a short period at a time.
There is no such thing as cannot in the market. Any stock can do anything.
1. There is no sure thing in the market – I was bound to be wrong half of the time.
2. I must accept this fact and readjust myself accordingly – my pride and ego would have to be subdued.
3. I must become an impartial diagnostician, who does not identify himself with any theory or stock.
4. I cannot merely take chances. First, I have to reduce my risks as far as humanly possible.
Don’t sell a stock as long as it keeps advancing. Just move the stop loss up to follow it.
Don’t fall in love with stocks, don’t get angry when they fall. No such animals as good or bad stocks. Only rising and falling stocks – hold the rising ones and sell the falling ones.
Stocks have characters just like people. This is not illogical, because they faithfully reflect the character of the people who buy and sell them.
The value of a stock is its quoted price. This in turn is entirely dependent on supply and demand.
It was impossible to assess great historical turning points in the markets when they began to happen.
If one horse is going to win, it will win, even if thousands of onlookers are cheering for another one.
Accept everything for what it was – not what you wanted it to be.
Look for the stocks that resist the downward trend more than others. They reluctantly went down with the bad market.
Stocks are the slaves of earning power. Look for earning power or the anticipation of it.
All a company report and balance sheet can tell you is the past and the present. They cannot tell the future.
Bear markets were always followed by bull markets.
Conclusion
This book is for a curious speculator. It follows the journey of Nicolas who is struggling to figure out how to make money as a speculator. He experiments using different tactics trying to figure out what works for him. In the book, he uses random guesses, fundamentals, technical analysis, and, in the end, a combination of the two.
Mr Darvas started out the opposite way to myself. He got lucky on his 1st mining stock and made over 100% which spurred him on to know more. I lost 98% on my first mining stock, which spurred me on to find out what I did wrong. He enjoyed the start of a bull market, I enjoyed surviving one of the worst bear markets ever. The other comparison, he made a ton of money and I have not…yet!
Mr Darvas is driven to make money and in the book and he is driven to figure things out and try whatever works for him. Remember, this was done during the 50’s and all the technology he used was a phone and mail. No inexpensive, quick online brokerage firms. It was slow, costly and seriously lacking information technology.
Another thing I noticed in the book is that Mr Darvas was extremely lucky. He managed to get out just before a bear market, waited, and then rode the start of the new bull market. It was 1953 when he started with the Canadian mining stock and he rode that bull market up until the late 50’s. He was also extremely concentrated. Diversification was not even mentioned. He went long and large and used trailing stops within his ‘box’ system. This stopped him from losing large amounts.
The book is well worth a read from a historical perspective. It is also very short and easy to read.
