Notes on Reminiscences of Stock Operator and Darvas


Personal

Updated Jan 19th, 2021

Chapter 1: Worked as quotation boy at 14 in the bucket shops. Introduced to the numbers and their changes. Stock prices show certain habits and before long started anticipated movements based on previous prices. Nothing new in wall street, speculation is as old as the hills. An older office boy got a tip and wanted someone to go in with him. Confirmed the tip with his book and entered his first trade, making a profit of $3.12 an started trading in a neighboring bucket shop. Started making money and quit his office boy job. Was 15 when he had his first thousand after a few months. Became known as the “boy plunger” and need to bounce around different bucket shops. Learned some of the games played by brokerage shops.

Chapter 2: Went to New York at 21 with $2,500. Don’t trade all the time. Wait for opportunities. Craving for constant action is responsible for losses. Broke within 6 months. Getting sore at the market doesn’t get you anywhere. Borrowed $500 to go back to the bucket shop and raise a stake and made $2800 in two days and they kicked him out. Had to go back to NY because word got out he was in town and no one would trade him.

Chapter 3: More talk about bucket shops not wanting his business. Not much in this chapter other than “there was much more to the game of stock speculation than to play for fluctuations of a few points.”

Chapter 4: Trading bucketing brokerage houses. Small time. Some lessons learned. Bought a car and decided to move to New York. Went back to wall street for 3rd attempt. Nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order to lose money, you begin to learn what to do in order to win. You begin.

Chapter 5: Men that can both be right and sit tight are uncommon. One of the hardest things to learn. Money is made sizing up the entire market. The sitting not the thinking that makes you the money. To lose your position no one can afford. “You know this is a bull market”, money not made in individual names but the overall general market conditions and trends. Early bulls and early bears can get slaughtered. In a bull market you buy and hold until the end of the bull market. Courage of convictions but patience to wait. The big swing makes the big money for you.

Chapter 6: Spring of 1906 in Atlantic City. He had a friend with him. Didn’t have an opinion on the market either way, but it was a Bull market. He was enjoying his time off. Got a feeling in the quote shop to sell Union Pacific but couldn’t tell why he had this urge. His friend was a bull and was very confused. Shorted his full 5000 shares and cancelled vacation to go back to NY. News of SanFran earthquake broke but the bullish market blindly shook off the news. He really maxed out his bet and cleaned up made $250,000 in a few days. And now his pumped he can swing a bigger line. He then summered in Saratoga Springs. He started buying union pacific based on tape and feeling it was being steadily accumulated. Ed Harding, his friend and the head of his brokerage called him on a long distance telephone and told him he was an idiot, there were insiders selling and the price was too high. He reversed his position by closing out his long and going short. 10% Dividend announced next day and the thing had a record breaking rocket move higher. He got what he deserved by listening to a tipster and not trusting his own feelings. Cost him $40,000. Then went long and overnight made $55,000. Learned an important lesson and gained confidence in himself.

Chapter 7: Buy on rising scale and sell on falling scale. He does a 1/3, 1/3, and 1/3 and then waited for reaction and see how it handles the reaction. He does this by putting a test order and see how it fills. If it looks good he adds another 2/3 of sum of original lots. He tells another story about how someone may temporary go against there gut to see how a test order reacts. Pyramiding. If a 1/5 of the order doesn’t work then why should you add to it?

Chapter 8: Trade the trend, a bull in bull market and bear in bear market. Be bullish in bull market and bearish in bear market. Talks the importance of timing as he was right but was early. Lost his fur but lived to fight another day. Wait until there is no danger in the engine backfiring. The longer the delay the sharper the break will be when it does start. Redding was the only stock that wouldn’t go down during start of bear market, it went through the threshold of 300 and he though it was going to temporarily go to 340 and that move failed so he went short big time. You don’t need to trade every day, wait for the signals.

Also talks about how a guy received a tip of rockefeller insider selling and so he buys to the confusion of the tipster. When the insider selling ends he sells what he accumulated to

Chapter 9 and 10: Great, talks about making a killing in 1907. Short ahead of liquidity crises.

Chapter 11: Talks commodities and how he became known as king of sugar.

Chapter 12: He partners up with a famous commodities trader.

Chapter 13: Starts off broke again. Left New York for Chicago and owed over $100,000 to brokers. Stay in Chicago cut short by telegram saying “come to New York at once.” To see big banker in New York that wanted to see him. Free money from broker to trade. Learned to never go against his own judgement. Broker gave him long positions so he couldn’t go against him on the bear side.

Chapter 14: Needed to trade successfully to get out of his financial troubles. Convinced himself what was wrong was wrong with him and not the market. The worry from the money he owed was clouding his judgement. Brokers waived off 90% of his debt and then he claimed bankruptcy. Needed to raise a stake. Went back to the broker from Chapter 13 but was told if you see something then come back. Waiting 6 weeks for the perfect play and nailed it on Bethlehem steel, and so raised his stake. Torpedo hits Lusitania and he took some losses but he had $100,000. The game does not change and neither does human nature. Enjoyed bull market of 1916 but watched for warnings of cracks in the system. Markets eases to be a bull market before prices crack. Sold the leaders that started acting different but kept long on the new leaders. Long and Short simultaneous. After a few months. One day the entire market sold off. He doubled down on the downside and waited 7 weeks. Received a big crack lower and used it to get out of his shorts. Never try to sell at the top, it isn’t wise. Sell after a reaction if there is no rally. He cleared $3m in 1916 by being bullish and then bearish. Bought 15k bales of cotton and then got unrestricted warfare note. After making his money he paid back all of his creditors from before bankruptcy, $1 million. Put some money in trust for his wife and child, because a man will play any money he can put his hands on. This way it was safe from himself.

Chapter 15: Happenings of the unexpected and unexpectable. After paying off creditors and still having a stake he was free to monitor Commodities and Stocks. Coffee seemed ripe for a move higher based on fewer ships to transport. Coffee shorts went to Washington and appealed to a war board to protect against Livingstons cornering of the coffee and the risk to American consumers. Rise was so sure of course it didn’t work out, in this case the trading rules were legislated against him.

Chapter 16: Tips. People love to give and receive them. Mrs. Livingston Borneo Tin Stock. A good line in this chapter is “I never buy at the bottom and I always sell too soon.”

Chapter 17: In Washington with congressman about taxes. Was long and made a lot on paper. Found a market to sell all of his long holdings and grabbed it while the grabbing was good. Commodities trade with wheat, noticed the selling caused the price to drop, a sign of weakness, so kept selling and it paid off. Groups should advance and decline with peers in group. If a stock doesn’t go up with the group and group leader then you need to get rid of it. Was short cotton and it was going against him. Cut losses and lost a million. Next day saw cotton had gone off 50 points but didn’t rally so he sold 10k shares, no rally, so sold some more, no rally. Shares fell. Covered on a crack lower and almost made his 1m back.

Chapter 18: History repeats itself. Insiders were reckless in bidding up stock in the face of weakness of the general list. Made a $1m shorting the stock in the face of an attempted short squeeze by insiders. Later went long the same stock based on the tape of insider support and made more money.

Chapter 19: Manipulation. Corners.

Chapter 20: More manipulation

Chapter 21:

Chapter 22:

Chapter 23:

Chapter 24:

Darvas

Chapter 1:

Chapter 2:

Chapter 3: First crises. Use fundamental analysis to find best industry and then find best company in that industry group and buy that stock. Uses brother and head of the family metaphor. Went all in on Jones and Laughlin. Can’t go tits up. Stock dropped. Refused to face reality. Was paralyzed. Blind panic set in, then terror. Lost $9k and he was crushed. What is the use of the research? Labored long and hard. Horror of bankruptcy stared him in the face. Needed to recoup his losses to save his property. Texas Gulf Producing kept tossing steadily, knew nothing about it. Bought in $37k and refused to take quick profit. Sold it and recovered back half of the big loss. What is the best point of fundamental when he knew absolutely nothing about this winner.

Chapter 4: The best chapter. Love it.

Chapter 5: It’s a good chapter talking about mechanics of telegrams with brokers

Chapter 6:

Chapter 7:

Chapter 8:

Chapter 9:

Chapter 10:

Chapter 11:


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