Where Are the Customers' Yachts? or A Good Hard Look at Wall Street (A Marketplace Book)

In the current gloomy environment -- with scandals and investigations ("shocked, shocked, I say, to hear...") at every turn -- this book is a LOL reminder of the constancy of human behavior in the face of temptation.
As the other reviewers note, Schwed worked as a broker in the early 1920's. He then wrote this book -- the "Liar's Poker" of its time -- in the 1940's, with the wry perspective that only a crash and ten years of stagnation can bring. Ancient history? Au contraire. What makes this book such a must-read is two things.
First, the things that firms and brokers do to separate customers from their money haven't really changed. Touting low quality underwritings, cramming unwanted inventory down customers' throats at inflated prices, using fancy phrases to flog dogs were as prevalent then as now.
But this is not a one-sided bashing of the Street and its techniques. Schwed gives equal time to customers' susceptability, even eagerness, to play their part in the game. Schwed's fundamental point is that people -- clients and brokers alike -- are forever led astray by their wanting to earn outsized returns without having to take any risk.
But the thing that really sets the book apart is Schwed's lucid yet highly entertaining style. You'll walk away with fresh insights into industry practices and market structures that you can apply to today's events. And even when you realize the target is you -- the ever-hopeful investor -- you'll be laughing so hard you won't mind.
If you even mildly liked Liar's Poker, you'll love "Yachts."

Put down that ugly brokerage statement from the busted, dot-gone Bear market. Skip that news report of the latest bankruptcy filing and spend a couple of whimsical hours with author Fred Schwed, Jr. WHERE ARE THE CUSTOMERS' YACHTS? is a rejoinder to Wall Street's inflated self-confidence that begins with that classic question. Schwed's conversational style makes this a quick read. His style is 'wry', 'dead-pan', 'droll' - a bit of Andy Rooney, maybe a bit of 18th Century novelist Lawrence Sterne. Schwed looks back to the 1920's (published 1940, republished 1955) as "one of the great universal delusions of history" a period of "supreme miscalculation". It was a kind of grand "nonsense" we can relate to in our own post-internet bubble period. Schwed is more humorist than moralist. Misdoings on Wall Street are "overrated" often a mix of "bad luck and bad brains". Advisors are "romantics" who genuinely believe that the market's movements can be predicted. Often they become victims of their own "confused sincerity". Technical analysts are "pathetic", persuading themselves of predictive patterns in stock charts and statistical data. In the end market activity may repeat itself, but often "ponderously, with an infinite number of variations." Schwed takes the side of short sellers, an unpopular bunch who weigh against the general herd to profit when the market declines. He notes that such professional cynicism is never tolerated in an un-free society. Years before the Wall Street Journal began 'testing' the efficient market theory (EMT) selecting stocks with darts, Schwed relates the apocryphal story of a bank trust officer's relative success selecting stocks from his pen's random ink spots. In a timeless passage, Schwed summarizes his investment program: "When there is a stock-market boom, and everyone is scrambling for common stocks, take all your common stocks and sell them. Take the proceeds and buy conservative bonds...just wait for the depression...sell out the bonds...and buy back the stocks....Continue to repeat this operation as long as you live, and you'll have the pleasure of dying rich." Who can argue with a contrarian strategy that would have worked wonderfully in recent years.

Here are the highlights that I found:

- The title of the book was more popular than the book itself because it was sold at a time when the market was down. This edition was left pretty much like the first edition because he wanted it to reflect what he was thinking at the time.
- The author, being a financial writer who treats his subject lightly, sold his stock too frequently. He would have been better off to keep his positions. (My research: this meant a 9.0% annual return from 1940 (1st edition) to 1955 (2nd edition).)
- Financial statistics can be deceiving because they can give a lopsided view. It is human vanity to think the market can be predicted in two+ years. Look at how many on Wall Street were fooled by the crash. Wall Streeters tend to be romantics and dreamers.
- Bankers do the opposite of what is needed - they lend money in prosperous times and retain money in bad times. The economy needs the opposite - curtail spending in good times and encourage it in bad times.
- Customers buy when stocks are high and sell then they are low. Chart reading doesn't work. (I think it does in identifying trends, but of course there is no guarantee the trend will continue.)
- Finances in Wall Street are hard to discover.
- Customers tend to misuse margin. They also do not like to have a lot of cash in their account. They will tend to churn their account to keep from being bored.
- History shows investment trusts aren't very good. There is strong temptation for them to be dishonest because of the great sums of money they manage. Clients demand a high return which causes the managers to take risks.
- It doesn't work to buy popular securities because they are probably overpriced.
- The public vilifies short sellers during and after a panic. Short's impact on the market is minimal because their numbers are so small.
- Three kinds of options: puts, calls, and straddles. Limited liability - options act like "term" insurance. A straddle is a put and a call bought together - stock must move sharply. Option costs are high.
- The speculator doesn't think of a company as a business, but rather as a stock ticker.
- Tape reading does not tell you what the buyers and sellers were thinking. It is simple probability that some speculators will be successful.
- A man's true wealth is his income, not bank balance.
- Customers who have lost money tend to think they have been robbed rather than take responsibility for their actions. Bad luck plus bad brains.

The book was very readable.

Sixty years old, and as accurate as ever. For everyone who thinks that technical analysis is gospel, for everyone who thinks high mutual fund fees are worth it, for everyone who complains that the "market makers" are manipulating the stock market, and most of all, for anyone who thinks that recent stock market events are unprecedented, you need this book! Schwed skewers classic Wall St archetypes that haven't changed a bit since 1940. It's a fun, funny read, and one I recommend highly, particulary to the Foolish.

"The more things change, the more they stay the same." That's how Fred Schwed, Jr. introduces this gem, if my translation of the French is correct. The book is timely, even though it was first published in 1940. The author shares his observations of Wall Street with wit and humor.
"The chief concern of this book", he states, "will be with an examination of the nonsense ... ." One example is this excerpt from a paragraph he takes out of The Wall Street Journal: "the action of the market was regarded as in the nature of a technical recovery, with little thought of the imminence of dynamic action." Nonsense was apparently well articulated before the bull market of the `90s. Another example is his explanation of why people buy high and sell low when they go to the stock market. They mistakenly believe that once prices are rising (or falling), they'll continue to rise (or fall). "But it is not a fair thing to say of the stock market," he claims,"which, not being a physical thing, is not subject to Newton's laws of propulsion or inertia."
There's more than "an examination of the nonsense" here. Readers may take "A Little Aptitude Test" to see if finance is their calling and consider "A Little Wonderful Advice" on getting rich. If Schwed's advice doesn't make you rich, his hilarious insight will at least make you laugh.

Read this book before you invest a dime! The passage of sixty years hasn't changed the relevance of this book. The author's experiences as a stock broker lead him to speak of the things that everyone on Wall Street knows, but doesn't care to speak of. Such as that even the most exalted stock market analyst doesn't know which stocks will go up and which will go down.
He's really funny, too. I read this book all in one day, it zips right along.

While you are wondering what to do with your money after the 2001/2002 stock market crash, Fred has some ideas...mostly how about cash? Since mutal funds have the best advice money can buy and are still falling, what's wrong with just having a bit of cash?
Anyway its hilarious! Should be a gift for college graduates/first jobers who have an extra buck in their pockets and are eyeing the stock/bond markets.

In a supposed conversation between the writers Ernest Hemmingway and F. Scott Fitzgerald, it is claimed that Fitzgerald said that the rich are better than the rest of us, to which Hemmingway replied, "Yes, I know. They have more money." For me, this is and perhaps will always be the most humorous statement regarding the fundamental truth about money, class and human nature.

This was one of those leisurely reads on The Street that on occasion served the reader a laugh or two. Human nature remains the same then as well as now. Reading this book, I believe, will give you insight into the follies of today, which are on a grander and more pervasive scale than they were in the Roaring Twenties, because now with the internet, any fool can participate with his (often borrowed) money.

Where are the customers' yachts is the funniest send up of the stock broking industry that's ever been written - by miles. The thing that strikes you is how nothing has changed since he wrote his memoirs in the late 1930s. (Allegedly, he lost a packet in the 1929 crash and decided to call it a day - from where he went on to write childrens' books).
His writing style is so nimble, so comic, that you can't help reading this book from cover to cover in a single sitting. You've got to read it, just for his description of the (...) world of short selling and analyst reports. It's old fashioned prose of the very best kind. No bizno-speak or MBA twaddle. Just colourful characters and lots of laughs.
Schwed may have been a broker, but everyone is a target. Clients... rarely do their homework and are always impressed by analysts/sales telling them what will happen. One pitiful tale involves a client asked for $500 margin in a falling market. He runs around all day raising funds to try and head off the deadline. But in the end he comes up short by 15 dollars - after paying the broker 485...
Where are the customers' yachts is a fabulous book. Schwed has managed to heap ridicule on everyone and yet spell out, very clearly, why the only winners are the bankers and the brokers.

Yes, I am one of the few who read the book cover to cover. It does not take long, and it is really really funny.

The funniest chapter was the one on short-selling.

RShaw