Saturday, October 23, 2010

nicolas darvas: how i made $2,000,000 in the stock market

hell! was there a famous world class dancer of hungarian origin who has made $2,000,000 out of thiny $10,000 in 18 months in 1958-1959? wanna look up the official u.s. inflation calculator in order 2 see how much have $2m in 2days inflationary dollars 'grown'? pls do yourself a favor and DONT TRY 2 compute the corresponding amount using not official, not doctored, not hedonic, pre-clinton, real inflation numbers ('price 2day - price before' => real inflation is really as simple as that!)  ... wanna visit john williams' shadow statistics?

ok, lets think abt the stuff i could remember after finishing that thinny booklet, where many issues were simplified in order to make it easier to understand ...

well, i liked it! why? 1st because it was really easy 2 digest and 2nd cos it was funny and interesting anyway. damn! already in the first 10 or 15 pages listed nicolas darvas that many mistakes he did in the beginning of his investor carreer that i asked myself why didnt i read this book before ive started my investor carreer ... it would cost me less than 10 euros instead of many thousands ive lost myself on following strange rumours, overtrading, commissions, subscribing financial services, newsletters, having pet stocks, throwing all money available in the markets, forecasting instead of following mr. market, my ego, not having an exit strategy and the like ... just kidding, of course i do know that we have 2 do the most mistakes by ourselves, otherwise we dont really remember them :-)

there was at least one big difference between darvas and me! he sold his stocks if he was wrong and didnt carried too heavy losses on single positions ... of course i didnt and there are still 'dead' stocks in my portfolio they are 95% or more below my original purchase price and there were also stocks which are no longer listed cos of bankruptcies etc.

what abt his BOX theory and abt his market approach? buy high, sell higher! is it really as easy as that? nope! watch also the volume (rising price + high volume!), cos there are already insiders who know more than mr. market + the general public at that time abt companys affairs. ignore all news/rumours abt a stock and take your decisions only based on your stocks behaviour ... make small pilot buys and follow your stocks closely in order to 'feel' them ... increase your position as long as the trend continues ... use automatic buy + sell orders ... always use stop-loss-orders! they will protect your capital ... buy if a stock moves into a higher box (we would prolly say ranges instead of boxes 2day) ... sell if the stocks fells below the box or on some other unexpected/unwanted behaviour ...

darvas considered himself as investor + trend follower + techno-fundamentalist and he didnt advocated short-term trading ... as for me, he was a trader who didnt paid too much attention to the fundamentals of his companies and only reacted 2 rising price & volume ....

any additional comments? yep, i could motivate my youngest daugther again and she typewrited few interesting rules 4u:

  1. I should not follow advisory services. They are not infallible, either in canada or on wall street
  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 rumors, no matter how founded they may appear. (btw, that was 4 him easier 2 arrange when he was touring the world as a night club dancer and only got his daily stock quotes telegrams than when he lived in NY :-)
  6. The fundamental approach worked better for me 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.
  1. stocks with quality rating
  2. stocks the experts like
  3. stocks selling below book value
  4. stocks with strong cash position
  5. stocks that have never cut their dividend
  6. the strongest industry group
  7. the strongest company within that industry group
how 2 act (re-defined objectives in the stock market):
  1. right stocks
  2. right timing
  3. small losses
  4. big profits
weapons 2 use:
  1. price and volume
  2. box theory
  3. automatic buy-order
  4. stop-loss sell-order

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