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Selected Materials from Book - Where Are The Customer Yacht? by Fred Schwed Jr.

Where Are The Customer Yacht? by Fred Schwed Jr. August 27, 2007

Perhaps, the quote by Jason Zweig on the cover of the book best sums it up “Schwed’s is the only financial book, out of hundreds, I’ve read, that will provoke you, teach you, and crack you up all at once.” It is with lots satires, some cartoons, and told in a twisted way that described the Street from many angles. The writing was umm, unique yet entertaining, definitely a rarity among most investment books. The book was short and fun to read, however, you had to re-read some phrases to really grasp the underlying gesture. The book doesn’t flow like a story as in Liar’s Poker, instead it covers various subject related to investing. It pointed out and addressed some very obvious yet not so easy to answer novice questions. Like in the introduction chapter, when the author first joined the Wall Street, and noticed a trader purchased some share of a stock and only to sell it a few hours later to acquire some five hundred dollar gain. He raises his first question and “asked where that money had come from, and had anybody lost it when the man won it?” It is through uses of these facts and some not so known facts, he reveals to you a different side of Wall Street that is not covered in your normal text book. You will also learn the morals and ethics, or immoral and un-natural practices, rather, within the Wall Street. With that said, I do think you need some financial or investing background to truly enjoy the writing of this book.


Quotes/Learned


“Deep Thinking, continues to be, as ever, mostly second guessing.”


Almost every book repeats this or something along this line “the sad truth that pitifully few financial experts have ever known for two years what was going to happen to any class of securities – and that the majority are usually spectacularly wrong in a much shorter time that that.”


“It seems that the immature mind has a regrettable tendency to believe, as actually true, that which it only hopes to be true.”


“Wall Street has always been burdened by having in its personnel a good many otherwise estimable people who don’t know anything about the laws of probability and risk, and not too much about arithmetic. It should not be too radical to suggest that a young man entering the Street should have some special mental equipment beyond one complete set of smoking-room stories about Mr. and Mrs. Roosevelt.”


Here is a 6 question self aptitude test:

1. Do you perceive quite clearly what is the objection of playing a roulette wheel that has two zeros on it?

2. If a man has tossed a coin “heads” four times in succession, which do you think he is more likely to toss the fifty time, head or tails?

3. When do you consider that it is good purchase to draw one card to an inside straight?

4. If answer 3 correctly, do you find that when you are actually playing poker for money, you can always resist making that draw?

5. If a stock which is not paying any dividend is split two for one, how much good does that do the stockholder?

6. What is the primary purpose of a business enterprise?

There are other reasons beside making money.


“There are certain things that cannot be adequately explained to a virgin either by words or pictures. Nor can any description that I might offer here even approximate what it feels like to lose a real chunk of money that you used to own.”


Eddie Cantor Phrase “they told me to buy this stock for my old age. It worked wonderfully. Within a week, I was an old man!”


“Customers who suffer from rhinophobia (the dread of ever having any cash) always have as many securities as possible. When they sell out stocks at a profit they hasten to fill the void in their accounts with other stocks.”


“A man’s funds are only less important to him than his health and his rights.” - note, no women or family mentioned.


On short seller “One is that being a bear raider is something like being a usurer or a jewel thief – that is an easy way to pick up a fortune provided you are willing to be immoral. The second is that it is socially harmful.” “… in which transactions are rare, … No one dares to be short … because no seller may turn up for a week.” (I think, stock with low liquidity are good buys, providing the underlying company are sound, there is no shark in the water, and since you plan to hold it for long term and expecting it to be a booming company, you wouldn’t care about short term traders. When the company gains popularity, so will the shares.)

“Bear raiding is the further ruthless slaughtering of prices by selling short at a time when they are already cruelly disorganized by actual economic calamity. That is raiding at what is considered its worst.” (This reminds me of couple days ago when Merrill Lynch downgraded CountryWide Mortgage from a buy of a few weeks ago, to passing the rumors of bankruptcy. What a great way to steer clear from recession.)


“… question: who suffers when the triumphant bears further push down the prices of stocks? … The answer is: the people who have brought stocks on margin, looking for a rise.”


A great chapter in this book about speculations is “A brief excursion into probabilities”

which tells a game where a large number of people are participating in a game of some chances. After each round, fewer people with consistent wining streak are left. After N rounds, say only 5 men are left in a million that started, these 5 men now claim to be the expert of this game.


“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 become a little.”


“Orderly markets, like horse races, exist on differences of opinion.”

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