Where Are The Customers' Yachts - Fred Schwed Jr

[seshnath]

[amazonsearch]Where Are The Customers' Yachts[/amazonsearch]

 

I read this book last year and here is the review from my blog:-

 

Recently, I was going to travel and wasn't really looking forward to it due to the connections and the quality of the immigration/customs service and the airport.  I wanted a read that would keep me sane during those 12 odd hours.  "Where Are the Customers' Yachts?" was staring right at me.  Oh!! what an interesting plane ride it was?  (If you saw a passenger in a Jet Airways flight chuckling to himself reading a book, you now have the mystery unraveled.)  The book provokes thought at the same time it makes you smile.  After reading this, I walked away with a much better understanding of the French expression, Plus ça change, plus c'est la même chose  (the more things change, the more they remain the same). 

 

The title of the book comes from an almost apocryphal sounding story of William R. Travers who after admiring the rows of beautiful boats owned by the rich brokers by the shores of Newport, Rhode Island is reported to have asked wryly "Where are the customers' yachts?"

Now to the Fred who?.  Fred Schwed Jr. was a professional trader who after having lost a bundle in the 1929 crash quit the Street for good.  He is also the author of "Wacky, the Small Boy" a children's book.  (After meeting some of the characters in the Street, I should probably say that Fred wrote about his audience in 1940 after writing the children's book in 1939).

After reading the chapter on Short Selling, you would think that the book was written just recently and not 70 years ago.

 

If you thought Ben Graham has the best distinction between speculation and investment - read this "Speculation is an effort, probably unsuccessful, to turn a little money into a lot.

Investing is an effort, which should be successful, to prevent a lot of money from becoming a little."

 

If you are the kind that invests in mutual funds or takes the help of an investment adviser, read this:-

"Some of these other gentry allocate the funds between themselves and their clients in the ancient classic manner, i.e. at the close of the day's business they take all the money and throw it up in the air.  Everything that sticks to the ceiling belongs to the clients."

(Reminds me of how Lucy decides which bills to pay.)

 

Here's another mystery solved regarding pay in Wall Street:-

"...how much do they pay these fellows?  Since this subject is nobody's business, everybody is interested.  As the man said after he had had the subject of relativity explained to him in a few unsuccinct phrases: "And from this Mr.Einstein makes a living?"

 

On forecasts:-

"Concerning these predictions, we are about to ask:

1. Are they pretty good? 

2. Are they slightly good?

3. Are they any damn good at all?

4. How do they compare with tomorrow's weather prediction you read in the paper?

5. How do they compare with the tipster horse race services?"

 

Quoting Major Lawrence Lee Bazley (L.L.B.) Angas on Charting:-

"All of these theories are true part of the time; none of the all the time.  They are, therefore, dangerous, though sometimes useful."

 

On margin trading:-

"Like all of life's rich emotional experiences, the full flavor of losing important money cannot be conveyed through literature.  Art cannot convey to an inexperienced girl what it is truly like to be a wife and mother.  There are certain things that cannot be adequately explained to a virgin either by words or pictures." (Mind you, this was written way before internet and the smut that gets offered through it) 

 

Further about the customer who is in for the ride on margin:-

"I have heard an old-line broker describe this common occurrence.  He explained, "They got on the Twentieth Century Limited at Grand Central Station.  They only intended to ride as far as 125th Street, where they would get off and visit Grandma.  But the first thing they knew they were making seventy miles an hour through Fort Wayne, Indiana.""

 

Quoting John W.Pope's letter to his investors:-

"His statement of condition as of Dec 31, 1930 was extremely simple.  All the money was in cash and call loans, which, strangely enough, was precisely where it should have been.  This statement also contained an incredible sentiment (I quote from memory), to this effect:

"It is the belief of the management of this corporation that a diversified list of carefully selected securities, held over a period of time, will not increase in value." "

 

Here's an aptitude test from the book:-

"1. Do you perceive quite clearly what is the objection to playing a roulette wheel that has two zeros on it? (If not, don't bother to be a financier; be a roulette player.)

2. If a man has tossed a coin "heads" four times in succession, which do you think he is more likely to toss the fifth time, heads or tails? (If you think he is more likely to toss either heads or tails, look into the interior-decorating game. You have that instinctive type of mentality which might do very well at that.)

3. When do you consider that it is a good purchase to draw one card to an insight straight? (Answer - when you are playing for soybeans.)

4. If you have answered #3 correctly, do you find that when you are actually playing poker for money, you can always resist making that draw? (If not, stay home with your money and start practicing being a miser.)

5. If a stock which is not paying any dividend is split two for one, how much good does that do the stockholder? (If you think it does him any real good, come down and join our sales department but steer clear of our trading department.)

6. What is the primary purpose of a business enterprise? This questions is specifically for young men considering entering the banking field, where they will have a constant parade of business propositions passing before them, and they will be required to plump for a few of them and say "no" to the others. The answer is elementary and obvious: the primary purpose of a business is to make money. Almost anyone knows this with the top part of his brain. But there are only a few valuable young men who also know this all up and down their spinal column.

Most businessmen imagine that they are in business to make money, and that this is their chief reason for being in business, but more often than not they are gently kidding themselves. There are so many other things which are actually more attractive. Some of them are: to make a fine product or to render a remarkable service, to give employment to revolutionize an industry, to make oneself famous, or at least to supply oneself with material for conversation in the evening. I have observed businessmen whose chief pre-occupation was to try to prove conclusively to their competitors that they themselves were smart and that their competitors were damn fools - an effort which gives a certain amount of mental satisfaction but no money at all. I have even seen some whose chief interest lay in proving this point to their partners.

So give yourself a real good mark if you know that a business should make money, but only if you really know it."

[CorpRaider]

I'm reading this book currently.  It is great!  I laughed out loud last night when reading his description of the usual strategy resulting from wallstreet advice to buy them high and sell them when the margin clerk says so.

[SwedishValue]

Quick and nice read. If you have read the Berkshire letters you will notice that this book is probably one that Buffett read quite early in his career.

[tallpop]

I remember laughing my head off  too.

Tried to get my kids to read it, but they didn't.

Will pull it out again to read it over.

Very funny.

[LongTermView]

Yeah, it's a good book.

[Guest longinvestor]

Just read it and it is hilarious. I plan to keep a copy handy to lend out to friends in my circle whenever they say one of the many naive things already mentioned in the book.

[Guest longinvestor]

A couple of my favorites, Seshnath has also noted this in his summary,

- Definition of speculation and investment: Speculation is the hope, likely unsuccessful, aimed at turning a little money into a lot of money; Investment is that mindset that is aimed at preventing a lot of money from turning into little money

 

- The investment trust (today's mutual fund) manager's MO: Throw the trust's money up and anything that sticks to the ceiling belongs to the client

 

;D

 

There are literally 100's of such pearls in the book. I've listened to it 3 times already and will do so again. It is non-stop laughter. And oh, btw, the narrator Mark Mosley is simply superb and literally brings the book to life.

 

[LC]

Thanks for the recommendation on the audio version, this is one of my top 5 investment books. I'll give Mosely's narration a try

[Guest longinvestor]

Can't resist posting another gem. At this rate, we'll post it all! Naa, there's just too much good stuff

 

Schwed talks about an accounting firm that had this rule that nobody left work for the day until the books were reconciled to<6 cents. But the same folks couldn't tell the value of their business within a million.  ;)

[John Hjorth]

Based on your last post, I coulden't resist ordering the book, longinvestor.

 

There was apparently some back log on it at Amazon, but I got confirmation today, that it has now been shipped.

 

- - - o 0 o - - -

 

Off topic:

 

It's about keeping my purchase impulses in check, pure diversion by buying books, instead of stocks. It's starting to get costly, actually.

 

The Lady of the House is shaking her head over all those books coming in. Then I start talking about that what I'm doing is actually building a margin of safety against going down on and running out of unread books.

 

[Actually, I still have some reading "work in progress" with "Of permanent Value" by Mr. Kilpatrick and "Snowball" by Ms. Schroeder right now, perhaps in the area of  reading through 3 kgs of pages - and she knows that ... - then she shakes her head again : - ) ]

[Guest jeffswaldron]

Now I have to purchase this book.  I have a similar "diversion" with 301 Audible books purchases since 2012.  No idea of the accuracy, but time spent listening is 29 days and 13 hours.  All thanks to commuting. 

[Guest longinvestor]

Based on your last post, I coulden't resist ordering the book, longinvestor.

 

There was apparently some back log on it at Amazon, but I got confirmation today, that it has now been shipped.

 

- - - o 0 o - - -

 

Off topic:

 

It's about keeping my purchase impulses in check, pure diversion by buying books, instead of stocks. It's starting to get costly, actually.

 

The Lady of the House is shaking her head over all those books coming in. Then I start talking about that what I'm doing is actually building a margin of safety against going down on and running out of unread books.

 

[Actually, I still have some reading "work in progress" with "Of permanent Value" by Mr. Kilpatrick and "Snowball" by Ms. Schroeder right now, perhaps in the area of  reading through 3 kgs of pages - and she knows that ... - then she shakes her head again : - ) ]

;D

One more thing that coincides with the audio book reading spurt, I'm spending less time on COBF. I find that I get to read all that I do want to read on this message board in way less time than previously. Fred Schwed made me realize that very clearly. In fact, found that listening to Schwed the third time was enjoyable over what I may have here. I learned so much about the workings of the markets that I didn't get from years of message board posts.  No offense to the community but some of my time wasted around here has been avoided. I'd be a fool not to continue so.

[John Hjorth]

I received the book from Amazon today. I look forward to the entertainment! :- P

[Guest longinvestor]

I received the book from Amazon today. I look forward to the entertainment! :- P

 

Here's one to whet your appetite,

 

"Someone told me to buy stock ABC in my retirement account for old age. Well, it's a week since I bought it and I'm an old man already"

[rijk]

hilarious and educational, nothing has changed in 70 years, beats 99% of all investment books, wonderful book!

[Guest longinvestor]

hilarious and educational, nothing has changed in 70 years, beats 99% of all investment books, wonderful book!

+1

 

It is also clear how much Schwed influenced the young Buffett mind. Here are very similar views,

 

Schwed: "I have carried this clipping published in the WSJ under the questionable title Market Ideas: During the slow rise of the DJIA from the April low of 121 to 139 in what can be considered to be in the nature of a technical recovery with little thought of dynamic resistance, the market appears to be engaging in a hazy consolidation movement. After a one day decline in the market, volume has dwindled and we now appear to be heading to the demolition of resistance Now, a thoughtful reader should read this backwards and none of the original lucidity will be lost. I've even composed a song of this with guitar accompaniment, starting with, the market is rii..ising"

 

;D ;D I laughed so hard on reading this. Guess what, just turn on CNBC or such on Monday morning, you will hear it all over again. Who said TV is boring?

 

 

Buffett: on chart reading: When I hold the chart upside down, I don't get a different result.

[John Hjorth]

This book is just so entertaining. Last night I just read the foreword and introduction. It's so hilarious, and at the same time so true, if you think about it.

 

There will never be any GS or MS for me to invest in. [i can't in any way control, what BRK invest in - at conglomerate investing you just have to take it all].

 

Every fellow CoBF member should try to read this book, in my opinion, already based on what I have read so far. Just try to get it to read at a library ..., you will most likely end up with a strong propensity to own it.

 

I'm already "sold", based on the nible part I have read so far.

[Uccmal]

This book is just so entertaining. Last night I just read the foreword and introduction. It's so hilarious, and at the same time so true, if you think about it.

 

There will never be any GS or MS for me to invest in. [i can't in any way control, what BRK invest in - at conglomerate investing you just have to take it all].

 

Every fellow CoBF member should try to read this book, in my opinion, already based on what I have read so far. Just try to get it to read at a library ..., you will most likely end up with a strong propensity to own it.

 

I'm already "sold", based on the nible part I have read so far.

 

Hey John,

 

I bought and read it eons ago, and lost it.  I bought another copy on the recommendation of the board members for a flight to France tomorrow.  I need some light reading for the torturous hours aboard the plane. 

[John Hjorth]

Hey John,

 

I bought and read it eons ago, and lost it.  I bought another copy on the recommendation of the board members for a flight to France tomorrow.  I need some light reading for the torturous hours aboard the plane.

 

Hi Al,

 

While doing my last post here on CoBF about the book, it hadn't even streched my mind, that this book is actually the perfect diversion under such cumbersome travel activity. But it is!

 

-Please enjoy the stay in France, your family, and life in general!