Where Are the Customers' Yachts?: or A Good Hard Look at Wall Street

So, you want to make money on Wall Street? Good idea, only be wary of investment counselors, stock brokers, or anyone purporting to have all the answers, such as authors of books on investing. Fortunately for us, Fred Schwed is not among them. His is a cautionary tale. He's worked on the Street and knows of its many pitfalls. Yes, his book was originally published in 1955, but as Jason Zweig (Money Magazine) points out in the introduction to the 2006 edition, nothing has changed. "The names and faces and machinery of Wall Street have changed completely from Schwed's day," writes Zweig, "but the game remains the same."The fact is, says Schwed, no one can predict the future with accuracy, but that is exactly what Wall Street analysts, investment counselors and ambitious stock brokers are claiming to do. It can't be done. The Wall Street game is nothing less than a crap shoot, with lots of losers and few winners, and the winners often end up losers. Who makes the big money on Wall Street? Investment bankers and brokers--from their exorbitant fees. They are the fat cats with the yachts parked out on Long Island, not the clients.Schwed aims his harshest criticism at investment counselors. "(They) 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."The authors makes a fine distinction between Wall Street speculators and investors. Speculators are the quick-buck artists hoping to make a killing; they don't. Investors are patient and looking for some place to put their money for the long term; they are the ones who actually make money. Put another way: "Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little."Schwed's book is funny, wise, a splash of cold reality. While filled with irony, it's not cynical. The author, who reportedly lost a bundle on Wall Street, remains a believer. "I have a sneaking fondness for that wretched old hag, the capitalistic system . . . we had better preserve our financial machinery even with much of the nonsense still adhering to it . . . The only successful method so far devised for getting millions out of the public, for enterprise both good and bad, is some system similar to the devious mechanism of Wall Street."Bottom line: no one on Wall Street has the answers. It's a guessing game. Be smart: invest for the long term, and maintain a healthy dose of skepticism.

Written in humorous style

Here are the highlights that I found:- The title of the book was more popular than the book itself because it was sold at a time when the market was down. This edition was left pretty much like the first edition because he wanted it to reflect what he was thinking at the time.- The author, being a financial writer who treats his subject lightly, sold his stock too frequently. He would have been better off to keep his positions. (My research: this meant a 9.0% annual return from 1940 (1st edition) to 1955 (2nd edition).)- Financial statistics can be deceiving because they can give a lopsided view. It is human vanity to think the market can be predicted in two+ years. Look at how many on Wall Street were fooled by the crash. Wall Streeters tend to be romantics and dreamers.- Bankers do the opposite of what is needed - they lend money in prosperous times and retain money in bad times. The economy needs the opposite - curtail spending in good times and encourage it in bad times.- Customers buy when stocks are high and sell then they are low. Chart reading doesn't work. (I think it does in identifying trends, but of course there is no guarantee the trend will continue.)- Finances in Wall Street are hard to discover.- Customers tend to misuse margin. They also do not like to have a lot of cash in their account. They will tend to churn their account to keep from being bored.- History shows investment trusts aren't very good. There is strong temptation for them to be dishonest because of the great sums of money they manage. Clients demand a high return which causes the managers to take risks.- It doesn't work to buy popular securities because they are probably overpriced.- The public vilifies short sellers during and after a panic. Short's impact on the market is minimal because their numbers are so small.- Three kinds of options: puts, calls, and straddles. Limited liability - options act like "term" insurance. A straddle is a put and a call bought together - stock must move sharply. Option costs are high.- The speculator doesn't think of a company as a business, but rather as a stock ticker.- Tape reading does not tell you what the buyers and sellers were thinking. It is simple probability that some speculators will be successful.- A man's true wealth is his income, not bank balance.- Customers who have lost money tend to think they have been robbed rather than take responsibility for their actions. Bad luck plus bad brains.The book was very readable.

This funny book is a mild rebuke of Wall Street operators and Wall Street customers alike. In fact, there are many more outright crooks on the street than Schwed lets on, specially if they perceive you as an easy mark, an orphan or a widow. I speak from experience having seen them churn an account to milk it of commissions.I was delighted to discover how old some of the Wall Street sayings are. It seems that nothing really changes in the human condition. One passage I found very entertaining is about a large group of Wall Street operators competing in a coin tossing game. As soon as you lose a toss, you are out of the game meaning that with each toss half of the players are gone. If you start with 500,000 players, after 15 tosses you have about 16 people left in the game. According to Schwed, these lucky people will soon take on airs of expert coin tossers even if they are winning based on pure luck. What I found amusing was that the author of a recent investment best seller uses this exact scenario to "prove" that most people who make money investing are just lucky. I wonder if this unnamed author read Schwed.I found one commentary rather unnerving. Schwed say that you cannot buy "competence" on Wall Street. You can find a competent plumber and a competent lawyer or doctor but you cannot find a competent investment advisor. While I'm no fan of Wall Street operators, this statement seems over the top. They might be hard to find or maybe the competent ones don't need clients, but that there is a total lack of competence on Wall Street must be an exaggeration.Read the book and be prepared to be entertained and instructed. There is a lot of solid Wall Street experience behind the humor.

Although the book is about 55 years old, this updated version is a delight to read and the feel to the book is excellent. Publisher spared not a dime.

This book was first published in 1940 and the author had experienced Wall Street at its most extremes. He was a trader but lost a lot of his money in the crash of 1929. It’s a cynical look at the practices and people on Wall Street of which the author clearly had a fine understanding. One might conclude that the financial world has not changed much since.It’s both witty and educational. As the introduction to the 2006 edition by Jason Sweig spells out: “The names and faces and machinery of Wall Street have changed completely from Schwed’s day, but the game remains the same. The Individual Investor is still situated at the very bottom of the food chain, a speck of plankton in a sea of predators”.The title of the book refers to the apocryphal story of some out-of-town visitors to New York. On arriving at the Battery their guides indicated some handsome ships riding at anchor and said “Look those are the bankers’ and broker’s yachts”. “Where are the customer’s yachts?” asked the naïve visitor.Here’s one educational paragraph from the book after he comments that “pitifully few financial experts have ever known for two years (much less fifteen) what was going to happen to any class of securities – and that the majority are usually spectacularly wrong in a much shorter time than that”:“Still he is not a liar; nor is our other friend. I can explain it, because I have not only had lunch with economists, I have sometimes had dinner with psychiatrists. It seems that the immature mind has a regrettable tendency to believe, as actually true, that which it only hopes to be true. In this case the notion that the financial future is not predictable is just too unpleasant to be given any room at all in the Wall Streeter’s consciousness. But we expect a child to grow up in time and learn what is reality, as opposed to what are only his hopes. This however is asking too much of the romantic Wall Streeter – and they are all romantics, whether they be villains or philanthropists. Else they would never have chosen this business which is the business of dreams”.On the subject of trusts he says “There has been a good deal of thoughtful, searching legislation enacted against trust abuses in recent years, and all of it favors the investor. The sad thing is that there can be no legislation against stupidity”. The recent events at Woodford come to mind.The writer also comments on the detachment of the investor or speculator from the real businesses represented by pieces of paper – and “with these pieces of paper thrilling games can be played……this inability to grasp ultimate realities is the outstanding mental deficiency of the speculator, small as well as great”.He points out that one of the agendas of the S.E.C. is to work towards the ideal of a completely informed investing public. A laudable effort he says but then points out that then “everybody would know whether to buy or sell, and whichever it was, everybody would try to do the same thing at once”. Orderly markets exist on differences of opinion. This view is worth pondering now that we have such instant dissemination of financial news and analysis on large cap stocks.There is a much wisdom in this book which is both relatively short and readable. Highly recommended for those new to investment for the education and to experienced investors for the levity.

Ich sah neulich eine Veranstaltung von Warren Buffett auf der er das Buch empfahl. Er gab diese Empfehlung, mehr oder weniger in einem Nebensatz, da er davon ausging, dass es ohnehin jeder bereits gelesen hätte / haben sollte.Nach dem ich es gelesen habe, kann ich dem nur wenig hinzufügen: Sollte man gelesen haben, wenn man plant Kapital anzulegen.

I loved the idea behind this book and the viewpoint the author had about the industry; very, very interesting. However, I found the author's tone and tangents to be a little challenging to really get into the book. I probably wouldn't recommend reading unless it is a subject of keen interest.

Bello bello molto bello, mi ha fatto sbellicare dal ridere. E al tempo stesso è anche molto informativo, ho imparato parecchie cose.