Entering Wall Street
JL called Lou Keller. I told him who I was and what I wanted. Next day he sent me some papers to sign, and advised me that as soon as I returned them with a deposit I would have an account with his brokerage firm. When I received his notice something happened to me. Suddenly I began to feel that I was becoming part of the financial scene. I cannot describe Wall Street because I have never been there physically, but even its name had an almost mystical attraction for me.
Here everything was going to be serious and different. I now considered my Canadian induction period as pure crazy gambling that I would never repeat.
As I studied the long gray columns of stock market quotations in the New York papers, I felt I was about to enter a new and successful period in my life. This was not like the wildcat
21
r
Canadian market with its quick tipoffs on gold strikes and uranium fields. This was responsible business, the street of bank presidents and great industrial combines, and I prepared to enter it with proper reverence.
I intended to make a much more cautious and mature approach to the stock market. I added up my assets to see what I had to work with. I had started in the Canadian market with $11,000—my original brelund investment of $3,000 and profit of $8,000. This had been reduced by $5,200 in the fourteen months of my Canadian operations. All I had left of the brilund money was $5,800.
This did not seem like enough money with which to approach Wall Street, so I decided to add to it. From the savings of my show business activities I raised my stake to $10,000. It was a good round figure, and I deposited this sum with the broker.
Then one day I decided to start trading. I rang Lou Keller and nonchalantly, trying to be the old financial hand, simply asked him what was good.
I realize now this inquiry was more suitable for a butcher, but Mr. Keller was equal to it. He suggested several "safe stocks.” He also gave me the fundamental reasons why these stocks were "safe.” While I did not understand, I listened intently to such explanations as dividend increase, stock-splits, improved earnings. Now this to me was the highest professional advice. This man earned his living on Wall Street, so obviously he knew. Besides, he only “suggested.” He emphasized that the decision was "up to me.” This made me feel important and in command.
When one or two of the stocks he gave me rose a few points almost immediately, I had no doubt of the excellence of the information I was receiving and my natural ability as a stock market operator to act on it. What I did not know was that I was practically smack in the middle of the biggest bull market the world had ever seen and it was quite difficult, unless you
H O T I MADE $2, 000, 000 IN THE STOCK MAR KE T
22
were extremely unlucky, not to show a little paper profit from time to time.
Here are three typical consecutive deals I concluded in the early part of 1954—deals which convinced me I was a natural in ’Wall Street. In this table as in all the following tables in this book, I have included commissions and taxes.
200 COLUMBIA PICTURES
Bought at 20 ($4,050.00)
Sold at 22% ($4,513.42)
Profit $ 463.42
200 NORTH AMERICAN AVIATION Bought at 24% ($4,904.26)
Sold at 26% ($5,309.89)
Profit $ 405.63
100 KIMBERLY-CLARK
Bought at 53% ($5,390.35)
Sold at 59 ($5,854.68)
Profit $ 464.33 Total Profit $1,333.38
You will note that each of these transactions netted me just over $400. It was not a large sum, but three profits in a row amounting to $1,333.38 in just a few weeks made me feel that these were smooth, simple operations and I was in control.
The feeling that I was operating with a profit in Wall Street, allied to a natural awe of the place, made me feel foolishly happy. I felt I was losing my Canadian amateur status and becoming a member of an inner circle. I did not realize my method had not improved—that I was simply using more pompous words to
t h e f u n d a m e n t a l i s t : Entering Wall Street
23
Thus, for the first time, Charlie’s use of me proved useful to me. For it prompted the reissue of this book.
While I was trying to reach my girlfriend in Paris on the phone and deciding that she was probably out cheating on me— Charlie proceeded with his usual build-up of Nicolas Darvas. He kept repeating my name and, as always, he was loud. A stranger in the next phone booth stepped out and said to him, "Is that fellow really Darvas? I studied his book like a chemistry text and—would you believe it—I’ve already made more than one hundred thousand dollars with what I applied from what he wrote!”
I stepped out of the booth, and the stranger turned to me. "Why the hell is How I Made . . . out of print?”
He didn’t wait for my answer. "I bought more than a dozen copies,” he continued, "but now I can’t seem to get another at any price. My only remaining copy is constantly being borrowed. Then I have to beg my friends to return it. They eventually do. But by now the book is in shambles.”
The stranger held out his hand. "I want to thank you,” he said. "I’ve got to catch a plane or I’d buy you a dinner or some drinks. I want to tell you something. You might have made two million in the stock market, but you wouldn’t make two cents in the publishing business!”
With that he grabbed my hand, did a swivel turn, and was racing toward a departure gate.
Then it hit me. I was dumb. Here, a decade later, I was still receiving a steady flow of mail in response to my book. Again and again, readers asked for clarification of certain points. Most of the questions were along the same lines. And the book was out of print!
Time has a way with it. And time had proved out my approach to stock market speculation. My book had become a classic that
x
was, in some cases, bringing as much as $20 a copy in the “out of print” book market.
Had I been extraordinarily lucky? Had I been caught in the momentum of a runaway bull market in which even a fool could do no wrong? Or was my approach so sound that it would work in almost any market?
The fact is that How I Made . . . has withstood the careful scrutiny of time.
I went from-the airport to the Park Avenue South office of Lyle Stuart. He had published my second book, Wall Street: The Other Las Vegas. He was a fellow with guts and one willing to take a gamble. But when I mentioned the possibility of putting How I Made . . . back in print, he assured me that that was no gamble at all. After a brief discussion, we decided that we would publish the original book without changing a word. The book was a classic. There was no point in updating it. An estimated one million people had read it. And it had had such an impact that it forced one exchange, the American, to alter its rules on stop-loss orders. The "powers that be” were so upset about the book that they managed to persuade the attorney general of New York State to make some wild charges against it —charges which he later quietly withdrew. (He shouted the charges, but he barely whispered the withdrawal!)
Yes, we would leave the book exactly as it was first published. But we would add some of the many questions that have come in from readers, and I would answer them. You will find this addition at the back of the book.
Obviously I am replying only to the questions most frequently asked. But here I want to tell you about one letter that contained no questions at all. Rather, it was a reprimand.
A reader of the book pointed out, with pages of data, that I had "missed the gold mine.” He insisted that, had I hired two
x i
full-time assistants and applied my system over a two-year period, I could have had a return of 3,000 times my original investment ($36,000)—or $100,000,000 instead of a mere $2,2 30,000 in 18 months.
The fault, said this reader, is that I failed to take advantage of high velocity movements and of margin. I failed too, he said, to reinvest my profits.
This, of course, is all hindsight. With the letter were detailed charts proving the case. Could I have made 140 times my capital in the 18 months? 200 times? 1,000 times?
Perhaps. But I have never been unhappy with what I did accomplish. I built a fortune with serenity by avoiding premature selling yet making an exodus from most of my stocks with the use of a single tool: the trailing stop-loss.
I have discovered no loss-free Nirvana. But I have been able to limit my losses, without compromise, to less than 10 percent wherever possible. Profits are a function of time, and so good reasons have to exist to keep a profitless purchase longer than three weeks.
My stop-loss method had two effects. It got me out of the wrong stock and onto the right one. And it did it quickly. My method obviously wouldn’t work for everyone. It worked for me. And, by studying what I did, I hope you find this book helpful and profitable for you.
Nicolas Darvas
Paris
February, 1971
Xll
Here everything was going to be serious and different. I now considered my Canadian induction period as pure crazy gambling that I would never repeat.
As I studied the long gray columns of stock market quotations in the New York papers, I felt I was about to enter a new and successful period in my life. This was not like the wildcat
21
r
Canadian market with its quick tipoffs on gold strikes and uranium fields. This was responsible business, the street of bank presidents and great industrial combines, and I prepared to enter it with proper reverence.
I intended to make a much more cautious and mature approach to the stock market. I added up my assets to see what I had to work with. I had started in the Canadian market with $11,000—my original brelund investment of $3,000 and profit of $8,000. This had been reduced by $5,200 in the fourteen months of my Canadian operations. All I had left of the brilund money was $5,800.
This did not seem like enough money with which to approach Wall Street, so I decided to add to it. From the savings of my show business activities I raised my stake to $10,000. It was a good round figure, and I deposited this sum with the broker.
Then one day I decided to start trading. I rang Lou Keller and nonchalantly, trying to be the old financial hand, simply asked him what was good.
I realize now this inquiry was more suitable for a butcher, but Mr. Keller was equal to it. He suggested several "safe stocks.” He also gave me the fundamental reasons why these stocks were "safe.” While I did not understand, I listened intently to such explanations as dividend increase, stock-splits, improved earnings. Now this to me was the highest professional advice. This man earned his living on Wall Street, so obviously he knew. Besides, he only “suggested.” He emphasized that the decision was "up to me.” This made me feel important and in command.
When one or two of the stocks he gave me rose a few points almost immediately, I had no doubt of the excellence of the information I was receiving and my natural ability as a stock market operator to act on it. What I did not know was that I was practically smack in the middle of the biggest bull market the world had ever seen and it was quite difficult, unless you
H O T I MADE $2, 000, 000 IN THE STOCK MAR KE T
22
were extremely unlucky, not to show a little paper profit from time to time.
Here are three typical consecutive deals I concluded in the early part of 1954—deals which convinced me I was a natural in ’Wall Street. In this table as in all the following tables in this book, I have included commissions and taxes.
200 COLUMBIA PICTURES
Bought at 20 ($4,050.00)
Sold at 22% ($4,513.42)
Profit $ 463.42
200 NORTH AMERICAN AVIATION Bought at 24% ($4,904.26)
Sold at 26% ($5,309.89)
Profit $ 405.63
100 KIMBERLY-CLARK
Bought at 53% ($5,390.35)
Sold at 59 ($5,854.68)
Profit $ 464.33 Total Profit $1,333.38
You will note that each of these transactions netted me just over $400. It was not a large sum, but three profits in a row amounting to $1,333.38 in just a few weeks made me feel that these were smooth, simple operations and I was in control.
The feeling that I was operating with a profit in Wall Street, allied to a natural awe of the place, made me feel foolishly happy. I felt I was losing my Canadian amateur status and becoming a member of an inner circle. I did not realize my method had not improved—that I was simply using more pompous words to
t h e f u n d a m e n t a l i s t : Entering Wall Street
23
Thus, for the first time, Charlie’s use of me proved useful to me. For it prompted the reissue of this book.
While I was trying to reach my girlfriend in Paris on the phone and deciding that she was probably out cheating on me— Charlie proceeded with his usual build-up of Nicolas Darvas. He kept repeating my name and, as always, he was loud. A stranger in the next phone booth stepped out and said to him, "Is that fellow really Darvas? I studied his book like a chemistry text and—would you believe it—I’ve already made more than one hundred thousand dollars with what I applied from what he wrote!”
I stepped out of the booth, and the stranger turned to me. "Why the hell is How I Made . . . out of print?”
He didn’t wait for my answer. "I bought more than a dozen copies,” he continued, "but now I can’t seem to get another at any price. My only remaining copy is constantly being borrowed. Then I have to beg my friends to return it. They eventually do. But by now the book is in shambles.”
The stranger held out his hand. "I want to thank you,” he said. "I’ve got to catch a plane or I’d buy you a dinner or some drinks. I want to tell you something. You might have made two million in the stock market, but you wouldn’t make two cents in the publishing business!”
With that he grabbed my hand, did a swivel turn, and was racing toward a departure gate.
Then it hit me. I was dumb. Here, a decade later, I was still receiving a steady flow of mail in response to my book. Again and again, readers asked for clarification of certain points. Most of the questions were along the same lines. And the book was out of print!
Time has a way with it. And time had proved out my approach to stock market speculation. My book had become a classic that
x
was, in some cases, bringing as much as $20 a copy in the “out of print” book market.
Had I been extraordinarily lucky? Had I been caught in the momentum of a runaway bull market in which even a fool could do no wrong? Or was my approach so sound that it would work in almost any market?
The fact is that How I Made . . . has withstood the careful scrutiny of time.
I went from-the airport to the Park Avenue South office of Lyle Stuart. He had published my second book, Wall Street: The Other Las Vegas. He was a fellow with guts and one willing to take a gamble. But when I mentioned the possibility of putting How I Made . . . back in print, he assured me that that was no gamble at all. After a brief discussion, we decided that we would publish the original book without changing a word. The book was a classic. There was no point in updating it. An estimated one million people had read it. And it had had such an impact that it forced one exchange, the American, to alter its rules on stop-loss orders. The "powers that be” were so upset about the book that they managed to persuade the attorney general of New York State to make some wild charges against it —charges which he later quietly withdrew. (He shouted the charges, but he barely whispered the withdrawal!)
Yes, we would leave the book exactly as it was first published. But we would add some of the many questions that have come in from readers, and I would answer them. You will find this addition at the back of the book.
Obviously I am replying only to the questions most frequently asked. But here I want to tell you about one letter that contained no questions at all. Rather, it was a reprimand.
A reader of the book pointed out, with pages of data, that I had "missed the gold mine.” He insisted that, had I hired two
x i
full-time assistants and applied my system over a two-year period, I could have had a return of 3,000 times my original investment ($36,000)—or $100,000,000 instead of a mere $2,2 30,000 in 18 months.
The fault, said this reader, is that I failed to take advantage of high velocity movements and of margin. I failed too, he said, to reinvest my profits.
This, of course, is all hindsight. With the letter were detailed charts proving the case. Could I have made 140 times my capital in the 18 months? 200 times? 1,000 times?
Perhaps. But I have never been unhappy with what I did accomplish. I built a fortune with serenity by avoiding premature selling yet making an exodus from most of my stocks with the use of a single tool: the trailing stop-loss.
I have discovered no loss-free Nirvana. But I have been able to limit my losses, without compromise, to less than 10 percent wherever possible. Profits are a function of time, and so good reasons have to exist to keep a profitless purchase longer than three weeks.
My stop-loss method had two effects. It got me out of the wrong stock and onto the right one. And it did it quickly. My method obviously wouldn’t work for everyone. It worked for me. And, by studying what I did, I hope you find this book helpful and profitable for you.
Nicolas Darvas
Paris
February, 1971
Xll
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