October 9, 2008
Interviews with Nicolas Darvas
Via zentrader.ca I found that solitarytrader posted links to a couple of fascinating interviews, one from 1959 and another from 1974, with Nicolas Darvas … here are my selected excerpts:
Pas de Dough (1959 Interview):
“Since he has to do trading from wherever he is dancing he ignores tips, financial stories and brokers’ letters, and has never been in a broker’s office. Basically, his approach is that of a chartist: he watches price and volume … When a stock makes a good advance on strong volume, he begins watching it, buys when he feels that informed buyers are getting in. For example, when he was playing in Calcutta, he noticed E. L. Bruce moving up in the stock tables. Suddenly, on 35,000 shares it moved from 16 to 50. He bought in at 51, though he knew nothing about the company, and ‘I didn’t care what they made.’ (They make hardwood flooring.) He sold out at 171 six weeks later.
Darvas places his buy orders for levels that he considers breakout points on the upside. At the same time, he places a stop-loss sell order just below his buy order, so that if the stock does not move straight up after he buys, he will be sold out and his loss cut. ‘I have no ego in the stock market,’ he says. ‘If I make a mistake I admit it immediately and get out fast.’ Darvas thinks his system is the height of conservatism … If he has a big profit in a stock, he puts the stop-loss order just below the level at which a sliding stock should meet support. He bought Universal Controls at 18, sold it at 83 on the way down after it had hit 102.
Darvas trained for the market just as methodically as he had studied his dancing, read some 200 books on the market and the great speculators, spent eight hours a day until saturated. Two of the books he rereads almost every week: Humphrey Neill’s Tape Reading and Market Tactics and G. M. Loeb’s The Battle for Investment Survival. He still spends about two hours a day on his stock tables.”
That line, “[He] buys when he feels that informed buyers are getting in,” made me chuckle. It should read “He buys when he suspects that uninformed fools are piling in.”
An Interview With Nicolas Darvas in 1974:
“Don’t forget I too went through a period of learning from 1953 to 1958 where I lost a substantial amount of capital before I worked out what worked and then was lucky enough to time it in the 1958-1960 bull market.”
I don’t remember him mentioning this “period of learning” in his $2,000,000 book, but it’s been a long time since I read it. Darvas, like Gann, was one of the few guys from the old days who stressed the importance of stop-losses.
October 9th, 2008 at 11:29 am
I really liked the book, too, but Darvas might have made more money selling it than he ever did from trading:
http://www.uglychart.com/2007/04/11/nicolas-darvas-how-he-made-2000000-writing-a-book/
Here is a short article about it from 1960:
http://www.time.com/time/magazine/article/0%2C9171%2C873372%2C00.html
October 9th, 2008 at 11:39 am
I read it about 10 years ago. I only remember Darvas used some sort of box method on his charts. A hedge fund manager I knew gave me a negative opinion of the book, so I never gave it much thought.
October 9th, 2008 at 3:28 pm
@Anthony: Think for yourself; you’re smarter than most of the dipshits running hedge funds. It’s an entertaining book if nothing else.
@Ugly: Thanks for the links… I’ll check them out. I have no problem with people who make $2MM trading and then write a book about it; I do have a problem with people who never traded writing books that make $2MM.
October 9th, 2008 at 7:45 pm
please don’t tell me there is not santa claus
October 10th, 2008 at 1:00 am
Please teach me how to make $2 milion in the stock market, please.
October 10th, 2008 at 4:17 am
start a stock market blog
October 10th, 2008 at 5:31 am
I read the book about a year ago and I remember that a significant portion of the beginning was about him losing money. In the book he actually says that he started out trading off of tips from others and he continually lost until he was forced to develop his own method…at least that’s what I remember.
October 10th, 2008 at 6:46 am
I should read the book but the part about “no ego in the market” I feel is very important to understand.
October 10th, 2008 at 10:01 am
@George: Thanks … I read it long ago and my memory is not as good as it used to be.
October 10th, 2008 at 3:07 pm
Ok Pete, but I will tell you there is no Mrs. Claus.
Darvas was an interesting character if nothing else, definitely a different lifestyle.
October 10th, 2008 at 11:55 pm
Any stock tips on how to make $2 mil? Mao please tell me what to buy and sell, I will give you commission if I win.
October 11th, 2008 at 3:02 am
help, you should look at MS. It’s a real winner. Here’s a nice chart. http://www.thelawyertrader.net/2008/10/morgan-stanley-on-death-watch.html
April 3rd, 2009 at 11:10 am
I’ve got the book on my coffee table. My favorite book about the stock market. Both because I find it the most entertaining, and the most educational. Let me take a shot at some of this stuff…
The lawsuit: It was dropped. Charges mean nothing. Didn’t even go to court. Anyone can be charged with anything in this country. Unfortunately, people often associate being charged with something with being guilty. (The public radio show This American Life talked about a good example of that on their recent episode Wrong side of history. You can listen on their website, last story of that episode.)
He lets you know in the book he’s not showing all of the transactions he had. Though he does show some of the unprofitable ones. He gives the most space to the main trades.
The investigator said they could only find around $280,000 in his New York brokarage account. They admitted he had accounts in Switzerland and Spain. Woh! You mean a millionaire could have a couple million hidden from the US government in foreign banks? In Switzerland you say? Posh.
Book money: During his life I believe it sold 800,000 to 1,000,0000 copies. It sold for 50 cents I believe. I don’t know what his take was, but that’s much less than a million dollars. Also, unlike most investors who always have to be invested, Darvas spent as long as two years out of the market waiting for good opportunities. Taking that time to write a book as a side business seems like a great idea.
It was easy: He spent five (count em’ 5) years learning and losing money before he started to become profitable. He made almost every mistake you could. Read tons of books. Studied tons of stocks. Then he waited about 6 months through a “baby bear market” to start investing. Then he earned $500,000 and became cocky and got distracted and lost $100,000 thousand in a few weeks which taught him the final hard lessons he needed to. (And still, in his interview, he admits he still sometimes deviates from his system and loses money for it. Like any human being.)
Money management: He played it a bit risky, but he had some since. After his first big when he set aside about half. He used fairly tight stops and stuck to them. After his first few wins, he was usually only risking his winnings. He bet bigger on the ones that really looked perfect to him and that were profitable from the get-go. During his initial several years, he traded with less money than when he was later more experienced (Which I think is a major point that’s very important.)
During one of his trades where he used a lot of leverage; yes, it was a lot of leverage, but it was from a special subscription where he got these shares for $42 when the last price was over $50. Meaning an automatic profit with his stop loss in place.
I call that a fair amount of money management.
Let me add to all this that he was a world-class ballroom dancer (which requires years of training), a champion ping-pong player(which requires years of training), and studied economics for 4 years in university. He was not a dummy and he new how to become good at something and persevere. In the introduction to the version of the book that’s available free online at Wikipedia, the editor mentions how Darvas would spend months working over ideas in his head. He was an intelligent guy.
Here’s the synopsis from Amazon.com:
How did a world-famous dancer with no knowledge of the stock market, or of finance in general, make 2 million dollars in the stock market in 18 months starting with only $10,000? Darvas is legendary, and with good reason.
($10,000 is what he started with, he had added to it and made it $36,000 by the time of his 18 month deal.)
That’s no doubt what people think of when they think of Darvas. Here’s how it would read based a bit more in reality:
How did a talented, intelligent man after 5 years of gaining knowledge of the stock market, making every mistake, and developing his own ideas, make 2 million dollars in the stock market in 18 months, after waiting 6 months for the right opportunities, starting with only $36,000? Darvas is legendary, and with good reason.
While most people read it and focus on his technique, I think they ignore the real secrets. The book is filled with what I think are the keys to becoming successful in the stock market, or anything.
Thanks,
Chad
April 3rd, 2009 at 11:30 am
@chad: Thanks for your thoughtful comment. Don’t get me wrong, I liked Darvas’s book and it’s one of the very few on my recommended reading for traders listmania over at Amazon.
April 4th, 2009 at 1:26 am
darvas’ book is one of my most-reco’d books as well. the lawsuits should be taken with a grain of salt; check for the articles around that time, where they either wouldn’t allow (or proposed not allowing) stops because of the popularity of darvas’ book!
it works best at the beginning and end of bull markets, not so well in bear markets. he wrote a few other books as well, his OTC one isn’t very good, “the other las vegas” is decent but not necessary, i didn’t like his self-help book, but “you can still make it in the market” is ok. talks about the dar-card, some modifications he made (ie. no longer just buying all time highs) and how the system worked well for the oil stocks in the mid 70s.
but his first book is really the only one anyone needs to read.
April 4th, 2009 at 8:28 am
@bob: I haven’t read any of his other books, but thanks for your comments on them. The Darvas trick as I understand it is to find a monster bull market in a stock or a sector or broadly and ride it up while trailing a stop. (Sounds easy but it isn’t.)
April 4th, 2009 at 9:47 am
Darvas’s methods, just like the turtles, just like any trend following system (even those than do not admit it :) ) are based on a break-out from a range, then a “trailing stop”. The stop does not have to be a hard price stop. it can be a time stop, it can be a reversal signal, etc…
Curtis’ book goes over many variations.
April 4th, 2009 at 10:11 am
@Chad
I think you may have posted better facts on Darvas than anyone else. 5 years to get profitable seems like he was a smart fellow.
It took me 9 years to finally have a profitable year. And that was the year after I automated almost everything.