Analyst, Motley Fool One. More Articles Over Christmas, a family friend asked me to take a look at her finances. Smart, able, honest, and competent, he put my friend in a basket of investments -- mostly low-cost index funds, a few individual stocks, and a portfolio of bonds -- keeping her on track to enjoy a comfortable retirement. For the most part, I was, too.

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His book stands as a timeless warning to investors and speculators alike. The Notes The title of the book is in reference to a story that comes from the late s. Friends of William Travers, a big short seller of the time, admired the beautiful yachts of the richest Wall Street brokers.

There are two types of books about Wall Street: admiring and vindictive. One comes out of bull markets, the other out of bear markets. But figures, as used in financial arguments, seem to have the bad habit of expressing a small part of the truth forcibly, and neglecting the other part, as do some people we know.

The ongoing search for a sign among the charts that foretells the rise and fall of markets never ceases. Investors and speculators have a habit of wanting to know about the future. The demand is supplied by Wall Street — with full faith in their ability no less — which conveniently fuels transactions. The worst that should be said of him is that he wants to convince himself badly and that he therefore succeeds in convincing himself — generally badly.

Missing gains can turn bears bullish, with a risk of it happening late in the cycle. Your average Wall Streeter, faced with nothing profitable to do, does nothing for only a brief time. Then, suddenly and hysterically, he does something which turns out to be extremely unprofitable.

He is not a lazy man. They are, therefore, dangerous, though sometimes useful. Sadly enough, they have usually found it. Assuming you answer 3 correctly, do you always resist making a draw in poker?

Is there any benefit to a shareholder when a stock is split to 2 to 1? Businesses exist to make money. The benefit to being a lazy investor is that an ambitious investor often tries to double their money as quickly as possible but ends up losing it all. It parallels the American principle that the first thing a man should do with his home, even before moving in, is to put it in hock.

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. Schwed calls it rhinophobia. So long as any of the money still clings to the sides of the churn, he will not be bored. Manager skill is inconsistent at best and a trust can still drop sharply in price. Investment trust shares fund shares are created to be sold. There is almost no visible supply.

You have a better chance of getting money back from the crook via legal means than the bonehead. The pathetic fallacy is that what are thought to be the best are in truth only the most popular — the most active, the most talked of, the most boosted, and consequently, the highest in price at that time.

IPOs and other new issues also dependent on popularity. Nobody cares about bears and short sellers until a ton of people lose money. When it happens, investors want someone to blame, not something to blame for their losses. The normal tendency is optimism — to see a stock rise in price. Few people think a stock might go to zero.

Just have to look at real estate or illiquid issues. He is just another fellow trying to be smart, or lucky, or both. Those who have hopes of living by the sword should not make too loud a fuss when they perish by the sword.

But the greater difficulty, I am grieved to report, arises after that has all been successfully done. But nearly all of us have a secret hankering for another one. The typical speculator sees stocks as ticker symbols and pieces of paper to play games with, not businesses with factories, workers, and products. My own considered opinion is that he too is pretty much a loony. In order to make his second unimportant million he had to risk his first precious million.

There will always be a few speculators who make money year after year just like there are always a few coin flippers who luckily hit on a long streak of heads. The longer it goes on, the more they both — speculator and coin flipper — believe they have some hidden skill.

Investment is an effort, which should be successful, to prevent a lot of money from becoming a little. One obvious difference is speculation attempts to get rich quick, investing attempts to get rich slow. The chance of success improves with the lengthening time horizon. Take the proceeds and buy conservative bonds. No doubt the stocks you sold will go higher. Pay no attention to this — just wait for the depression which will come sooner or later. When this depression — or panic — becomes a national catastrophe, sell out the bonds perhaps at a loss and buy back the stocks.

No doubt the stocks will go still lower. Again pay no attention. Wait for the next boom. The chief difficulties, of course, are psychological. It requires buying bonds when bonds are generally unpopular, and buying stocks when stocks are universally detested. On Price and Value: Value is whatever you want to make it when you sprinkle in enough optimism or pessimism. A potential risk when investing for an income is letting lifestyle creep dictate investment selection.

Two big investment mistakes are trying to earn too high of a return and playing it too safe. Best to accept the nonsense that comes with it, then try anything else. Buy the Book: Print Sign up for more weekly wisdom. E-Mail Address.


Business books: Where Are the Customers' Yachts? (Fred Schwed)

Feb 11, SallyStenger added it. It is especially funny to see that almost all of this folly, 73 years later, is still all around us with the addition of some other new ones. Sadly, the signs of this phenomenon are everywhere. Although written 75 years ago, applies very well today. Leave a Reply Cancel reply Yachtts email address will not be published.


Where Are The Customers’ Yachts? by Fred Schwed Jr.





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