Where are the Customers' Yachts? or A Good Hard Look at Wall Street

This  book has to be the wittest book that I have ever read about the people and the institutions of the stock market.   The book is written by Fred Schwed, a former stock broker on Wall street, except in those days, brokers are called "customers' men."

Even though the book was written in the 1940s, when you read it today, it would still be very much relevent. In fact, you got this funny feeling that the more things change, the more they stay the same.
 
The book is written in a very witty way with a satarical and penetrating tone.  Reading this book in English, it is great joy. However, some of the most funny sentences in this book, I am not even sure can be translated. 
 
There are some of the wittest sentences that I have ever read about stock market.  Below are some examples:
 
1. About the difficulty in finding good "investment trust management" equivalent of today's money managers, "simply because there is practically no competence to be hired."
 
2.About the chartist, "As a science, I should say that chart reading shares a pedestal with astrology;"
 
3. About the lack of customers for brokers, "eventually even backgammon gets tiresome. So they begin to play the market themselves, using their own money instead of customers'. It is like a saloonkeeper taking a drink in a slack season, and the results are about the same."
 
4. About the passion of prediction of brokerage houses, "On the economic side there is no denying that the more financial predictions you make the more business you do and the more commissions you get."

If you are about to "start investing in the stock market" or have been in the market for a while but not able to consistently make money, or God forbid, you have been "gambling in stock market for excitement and entertainment," I suggest you to read this book.   Somehow someone should tell you the truth! 

ISBN: 0471770892 (English)

           9578457030 (Chinese Tradtional)

           9787111302452 (Chinese Simplifed) 

Prof. Andrew Weiss's Investment Do and Don't

I first learned of Dr. Weiss from a guest lecture that he gave at the Business School in Columbia University.
I was deeply impressed by that speech and decided to learn more from Dr. Weiss.

It turns out that Dr. Weiss is not only an economist but also a hedge fund manager. Below are what significant people said about him.
"If I had one person to pick and one guy to put the money in, I would pick him."--Prof. Bruce Greenwald, who taught value investing at Columbia University.
"[Weiss] is a significant person among US economists. I have known him personally for 30 years and I have the highest respect for him."-- Robert Solow, Nobel Prize Laureate in Economics

Below is the note that I took from a speech delivered by Dr. Andrew Weiss at Boston University.


Don't under any circumstances:
1. Buy stocks or bonds from someone who is cold calling you. Especially if they are working for a firm that is not known to you.
2. Put your money in a discretionary account- an account in which the broker can trade without your permission
3. Buy bonds on the secondary market unless you are buying at least $50,000 worth and have gotten at least 3 quotes from different dealers
4. Buy open end mutual funds with high expense ratios. The expense ratio should be less than 0.75% per year for domestic funds and less than 1.5% for foreign funds.
5. Buy a mutual fund with a load or redemption fee.
6. Put your money in a wrap account- an account in which the broker gets a 3% annual fee for managing your money
7. Trade on the bases of past price patterns  (except for tax considerations) or on the basis of what you paid for the stock. (The people to whom you hope to sell your stock don not care what you paid for the stock and your aim is to get more for your stock than you paid for)
8. Speculate in commodities

Avoid:
1. Having a significant fraction of your wealth in the stock of your employer
2. Investment whose value is likely to be low when you need money. These are stocks whose values are correlated with the value of your job or home.
3. Full service stockbrokers
4. Buying mutual funds with high portfolio turnover rates
5. Story stocks- the next cure for cancer, a cure for aids, the solution to the most important problem confronting America. Even if the story is right you still have a good chance of losing a lot of money. UNIVAC (mainframe), Commodore computer (PC) and sea-land (container shipping) were all at the “cutting edge of a revolutionary technology.” They were each terrible investments

Do:
1. Diversify to protect yourself against unlikely events. Remember that unlikely is not impossible.
2. Diversify across common stock with very different characteristics. Stocks in different industries and different countries. A collection of very different risky securities can be a much safer portfolio than a portfolio of “blue chip” investments. The Pennsylvania railroad and the new York central railroad, eastern airlines, Bethlehem steel, General Motors, Poloroid, US Lead, were once blue chip investments. Diversifying across countries buying shares in Canadian and UK companies does not give adequate diversification across different countries. Invest in markets that are not highly correlated with US.
3. Sell your losers to take tax loses.
4. Buy securities that have lower prices relative to their earnings or assets.
5. Read the latest 10K and 10Q reports for securities before you buy them. If your stockbroker won’t supply those reports get a different broker or go to the library.
6. Buy US savings bonds in preference to all other fixed income domestic securities (except junk bonds which should be viewed more as stocks) Why US savings bonds? Taxes are not paid until bonds are redeemed. Interest is 85% of 5 year T-bill rate and is recomputed every 6 months for first 5 years- protection against inflation. After 5 years bonds can be redeemed at any time at no penalty-minor penalties for early redemption you get to benefit from falls in inflation without being hurt by increases in inflation.
7. Construct your own mutual fund from stocks featured in mutual choice in Barron’s the favorite stocks of a mutual fund manager is described each week.
8. Buy stocks in companies about which you have some special knowledge- especially if those are companies that will do well if your own employer does poorly.

“I early on learned that any relationship between what they (stockbrokers) said would happen (to a stock) and what did happen was purely accidental.” Donald Baxter, manager of Philadelphia Fund and former stockbroker.

The original video can be found here.---Boston University Speech

The Big Short: Inside the Doomsday Machine --- By Michael Lewis

Hardcover: 266 pages
Publisher: W. W. Norton & Company (March 15, 2010)
Language: English
ISBN-10: 0393072231
ISBN-13: 978-0393072235
       Michael Lewis is one of my favorite writers. In this book, he introduces you to several people who saw that 2007-2009 financial storm coming and went short against the mortgage bonds. These people are very interesting to me somehow. In particular, this one medical doctor, Dr. Michael Burry, struck a cord with me.
      Dr. Burry is not a new name to me. The first time I heard about him was in the late 1990s. At the time, he had this "blog" about investing before the word "blog" was used.
      I was learning about investing at the time and Dr. Burry's writing and real-time stock picks on the site showed me that there is an intellectual way of thinking about investment in general and stocks in particular. I may say that I have my networth today, to some extent, due to the intellectual framework formed at the time when I was reading his website.
      For people who want to be an investment manager, I think it is important that they read about Dr. Burry's experience during the whole time he was short mortgage bonds by CDS.
      Here is his writing about CDS and how he use CDS to short the worst of mortgage bonds. Scion capital CDS primer
http://scioncapital.com/PDFs/Scion%202006%204Q%20RMBS%20CDS%20Primer%20and%20FAQ.pdf
      Other characters in the books are also very interesting. I think many of readers on this website may identify themselves with the three guys from Cornwall Capital. These are people who have little money at the beginning but made big money (for private investors) by exploiting the inefficiency of the market.
     This has to be the best book that I read this year. Don't laugh, I am not making this up. I do read about 40-50 books a year in my spare time.
     If you don't mind reading in English, I think you would like this book.

一個不曾在股市中虧過錢的人

在第二次世界大戰剛結束之後我從軍中退伍，我進入石油業從事鑽油的工作。閒暇之餘，我開始買賣股票。起初只是個嗜好，後來卻是年年有淨損失。我試了讀過和聽過的各種方法；不管是技術分析，基本分析，或是各種混合了技術分析以及基本分析的方法，我都嘗試過。在1958年股市大漲時，也許聽起來連瞎子都不可能虧了錢的，但我卻虧了錢。我在股市進進出出，手中持股換來換去中，我損失了許多資金。但是在1961年，有一天當我在休士頓的美林証券的辦公室，當時我是十分的灰心，心中充滿了挫折感。一位資深的客服主管(營業員)，因為多年來一直看到我總是愁眉苦臉，就向我打手勢招呼我到他桌邊去。

他滿臉倦意的地問我，『你想不想認識一位從未在股市中虧了錢的人？』

我結結巴巴的問道，『從不曾在股市中虧過錢的人？』

這老營業員慢條斯理的說，『他總的來說不曾虧過錢，而我幫他買賣大約有四十年了。』
然後，他打手勢指著坐在看盤的人群中，穿著連身工作服的一位大塊頭老先生。
『如果你你想見他,最好趕快』，老營業員告訴我，『他除了當他正在買股票時之外，每隔幾年才到這裡一次。他來時總會停留個幾分鐘看看盤。他是從灣鎮 (Baytown)來的，他一方面種稻，一方面也養肉豬。』我從人群中慢慢擠到這穿著連身工作服的陌生人身邊找了個位子坐下。我向他自我介紹，又跟他聊了一陣子有關種稻子和獵鴨子的事，然後逐漸地把話題牽扯到股票上。令我驚奇的是這陌生人很樂意談論股票。他從口袋裡拿出一張紙要給我看，原來在這張紙上，他用鉛筆潦草地寫下了他剛剛賣完的股票。

我簡直不能相信我的眼睛! 這個人整體上賺了50%長期資本利得。在這大約三十個股票裡有一個股票是分文不值，虧光了。但是其他的股票，漲了100%, 200%，甚至500%。他向我解釋他的方法，這方法說來實在是再簡單不過。當空頭市場時，他讀報紙，讀到股市下跌創新低，專家預測道瓊指數肯定要再跌個上百點(譯註：大約是十到二十%)。這個農夫就去標準普爾(Standard and Poor)的股票指南(Stock Guide)裡，挑上大約三十個價格跌到在〈美金〉十塊錢以下，獲利穩定，沒人聽說過的，並且固定支付現金股息的股票。這時他就到休士頓城裏來，花上五萬美金(譯註：1961年的一塊美金約值2015年的8塊美金，1961年的五萬美金約為2015年的一千兩百萬元新台幣)買上『一整包』股票。然後過了一年，兩年，三年或四年後，在股市大好，分析師大談道瓊指數將創新高的時候，他就再進城來把他的『一整包』股票賣掉。就是這麼簡單。

1960到1969年的道瓊工業指數，一百點的跌幅約略是十到二十%

在隨後的日子裏，我和Womack 先生交上了朋友 (也一起在他的稻田裡獵鴨子) ，一直到他去年去世為止，我也學會了他投資的哲學。他把買股票視同買一卡車的肉豬。他買豬的價錢越低，當下個賣方市場來臨時，他賺的錢就越多。他聲稱在這樣條件下，他寧可買股票也不願買豬，因為豬並不支付股息。而且你還得預備東西來餵豬。

總之，對股市，他採取種田的法子。種稻，有播種的季節也有一個收割的季節。在他的股票買賣，他嚴密地謹守『季節』。 Womack 先生好像從未在股票剛好觸底時買股票，也從未在股票正在最高峰時賣股票。他似乎很樂意在股市的底部附近買而在或高點附近賣。當他買時，他似乎沒有停損的觀念。 例如, 當1970年股市破底時, 他又多花了五萬美金，加碼買入那些他原來就賤價買進的股票。這一次他真是大大的賺了一筆。

我假設現代的股市技術分析師，能從Womack先生的簡單的股票投資法中，找到許多阿爾法(alpha)，貝他(beta)，相反觀點(Contrarian Theory)和其它理論。但我知道沒有人跟他一樣重視『買入價格』的。我知道有許多事情可以決定買入一個股票是不是明智。但是我學會了如果能在股市低迷時，低價買入，許多判斷的錯誤都是可原諒的。在股市高檔時，賣得太早，賺錢；賣到高點，大大的賺錢；或者賣在開始回檔時，仍然賺錢。如此看來，既然有許多賺錢的可能性存在，最佳的成本價是值得耐心等待的。知道這個，在股市低迷時，當技術分析師警覺的瞪著你看，因為你買在他發佈最新"出售信號"之後，總是令我感到安慰。

總而言之，Womack先生沒有把股市搞得很複雜。他教導我，不可能每天，每星期，或者每個月買股票而賺錢。就像種稻，不可能每天，每星期，或者每個月播種，而能種出莊稼來。他改變了我投資的生活方式，並且我自此獲利。

------------- 譯自 John Train "The Craft of Investing"

住在美國的時候，在閒暇之餘，喜歡到舊書店逛逛。無意中在一本英文舊書中，看到這篇故事，心中頗有感觸，於是花了一些時間，把這文章翻譯成了中文，要給在台灣的家人看。順便貼在聚財網，轉眼間已然十年多，也有喜歡的朋友放到他的書中，放在這裡，股市大跌時，或許有人會在看了以後同樣心有所感吧！