“Where are the Customers Yacht’s?” Book Review

by Mike Holman

I decided to read this book because I’ve seen it referenced in numerous finance books, one of which is the Four Pillars of Investing by William Bernstein. Canadian Capitalist has posted a list of the recommended readings from Bernstein.

This book written by Fred Schwed is a fairly light-hearted look at the investing game. The author, who worked in the industry as a trader, does not take the industry or himself seriously at all. Although it’s not a serious academic study, the author lays the groundwork for the efficient market hypothesis (EMH) although he never uses those words in the book. Interestingly enough, having read both “Four Pillars of Investing” and “A Random Walk Down Wall Street”, this book was clearly the genesis of those two books. Some of the same stories, analogies and even jokes are shared among the three books. Since Schwed’s book came out in 1940, obviously the latter two books copied some material from it.

Unlike most finance books which tend to have lots of studies, graphs and the like, this book offers no proof whatsoever of his theories. Schwed doesn’t even explain how he came up with his version of the EMH. What he does do is explain how various market professionals are more or less useless, with a lot of Mark Twain type comments mixed in. The book is somewhat dated which makes for some amusing reading, in particular the section about investors who sell short entitled “The Short Seller – He of the Black Heart”.

My favourite paragraph from the book is about speculators (traders) and how the only thing they know of the companies they trade is the stock symbol:

This inability to grasp ultimate realities is the outstanding mental deficiency of the speculator, small as well as great. He is an incurable romantic and usually egotistical. His mind is fast, active, and resourceful, and, in a peculiarly limited way, shrewd. That is, he is shrewd in everything save that he is constantly, day by day, laying himself open to the possibility of being ruined. He seems to believe, with Mother Goose, that a treetop is the proper place for a cradle.

Bottom line: This book is interesting, funny and easy to read. If you’re like me and like reading a lot of finance books then I recommend this one for a change of pace. If you’re just getting started as a DIY investor then I would suggest something more recent such as the other two books I mentioned earlier.

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{ 2 comments… read them below or add one }

1 Canadian Capitalist

I read part of the book last year and I was surprised at how so much of the book could have been written today. At least in investing, the more things change, the more they remain the same.

2 FourPillars

You got that right.

I’m currently trying to get through “Security Analysis” – Ben Graham. It’s a long, tough read but it talks quite a bit about the excesses of the late 1920’s before the big crash.

If you change the dates to 1999, 2000 and add “dot com” to the company names, he could have been talking about the dot com bubble.

I’ll be posting a book review on Securities Analysis the minute I finish it…look for it later this year 🙂

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