Fred Schwed's Where are the Customer's Yachts?: A modern-day interpretation of an investment classic

by Leo Gough

Overview

The title of this 1955 book refers to a story about a visitor to New York who admired the yachts of the bankers and brokers. Naively, he asked where all the customers' yachts were? Of course, none of the customers could afford yachts, even though they dutifully followed the advice of their bankers and brokers. Full of wise contrarian advice and offering a true look at the world of investing, Where are the customers' yachts continues to open the eyes of investors to the reality of Wall Street. Here, Leo Gough's interpretation of Where are the customer's yachts illustrates the timeless nature of Fred Schwed's insights by bringing them to life through 52 modern case studies. This brilliant interpretation is an entertaining accompaniment to one of the most famous books on investment ever written.

Product Details

ISBN-13:	9781908189608
Publisher:	Infinite Ideas Ltd
Publication date:	01/17/2011
Series:	Infinite Success
Sold by:	Barnes & Noble
Format:	eBook
Pages:	128
File size:	742 KB

About the Author

Leo Gough is an experienced investment writer, a financial journalist and a dedicated private investor. He is the author of several books, including The Financial Times Guide to Business Numeracy, How the Stock Market Really Works, Going Offshore and Asia Meltdown. He is also the UK editor of Taipan, a newsletter on direct equity investment in emerging markets.

Table of Contents

Introduction 1. Increasing your savings income – the wrong way 2. Speculation 3. Share prices don’t always go up 4. The future of investment 5. Booms go ‘boom’! 6. Professional stock-picking 7. Spend your income, not your capital 8. Capital markets 9. Probability 10. Who to blame? 11. Popular shares 12. Derivatives 13. Stock indices 14. The trouble with accounting 15. No momentum in prices 16. Technical analysis 17. Good stories 18. Nanny state? 19. Just because someone works in the stock market doesn’t mean they are a good investor 20. Diversification 21. Having your cake and eating it 22. Exceptions are the rule 23. Fundamental analysis 24. New issues 25. Trustees, executors and lawyers 26. Retirement planning 27. Index investing 28. Don’t invest on a high 29. Companies don’t often turn around 30. Ride the winners 31. The trouble with transaction costs 32. Crooks 33. Avoiding the big collapses 34. Counter-cyclical investment 35. Globalisation 36. Numeracy required 37. Short selling 38. Those crazy regulators 39. Collective investments 40. Mergers and acquisitions 41. Massaging the figures 42. Looking for bargains 43. Discounted cash flow 44. Stock market newsletters 45. Life plan 46. Hedge funds 47. Some important basics 48. Behavioural finance 49. Business is hard 50. Loss 51. The ‘fat, stupid peasant’ approach 52. Books on the stock market Index

Preface

In 1940 Fred Schwed, a stockbroker whose father had lost everything as a short seller on Wall Street during the Roaring Twenties, published this timeless classic on how the stock market really works. Schwed, a pleasure-loving, cultured man who had been expelled from Princeton University in his final year for entertaining a lady in his room after 6pm, had a deep understanding and few illusions about the world of investment. He had seen the ups of the 1920s boom and the downs of the 1930s Depression, and his insight into the psychology of investment professionals and their customers is as relevant today, in the current financial crisis, as it was in 1940. The title of his book, Where are the Customers’ Yachts?, refers to an old joke: a tourist is being shown all the fancy boats in the harbour, and is told, ‘These are the bankers’ yachts, and these are the stockbrokers’ yachts.’ When he asks, innocently, ‘Where are the customers’ yachts?’ he is told that there aren’t any (in other words, the customers have not got rich from the stock market). Schwed is very far from being a cynic, however. He is not saying that investment is pointless, or that private investors never make any money. Rather, he is casting doubt on the ability of the financial services industry to provide any really valuable advice to its customers. In recent decades great strides have been made in the theoretical understanding of financial markets, but Schwed’s wisdom, developed long before the days of hedge funds and exotic derivatives, still holds true. There’s a humorous gem on almost every page that strikes a very familiar chord, from the story of the highly paid economist who lugs huge briefcases full of documents to conferences (but never opens them), to the gentle dig at the tendency of analysts to ‘develop a prose style which would make a nineteenth century German metaphysician envious’. Fred Schwed had ‘a sneaking fondness for that wretched old hag, the capitalistic system’; in his view, it’s much better than the alternatives. His central point is that markets are unpredictable. That doesn’t matter if you’re investing for the long haul, because all the major stock markets perform well in the long term – it’s trying to do better than average, says Schwed, that causes all the trouble. The follies, the frauds, the fads and the scandals of today are remarkably similar to the ones in Fred Schwed’s day. That shouldn’t come as a huge surprise, when you read the way that this charming, sophisticated writer deals with the issues of the 1930s and 40s, the truth of the axiom that people never seem to change really hits home. As Michael Lewis says in his foreword to the 1995 edition, ‘I like to think that when I first stumbled across this delightful little book the ghost of its author stumbled right along with me, with a gin and tonic in his hand.’ Reading Schwed’s book is like meeting a friend, and it’s a great feeling to realise that not everyone in the markets, then or now, is a money-obsessed barbarian.