HH How I Made $2,000,000 In The Stock Market by Nicolas Darvas American Research Council Larchmont – New York 2 Copyright © 1960, by Nicolas Darvas ALL RIGHTS RESERVED, INCLUDING THE RIGHT TO REPRODUCE THIS BOOK OR PORTIONS THEREOF IN ANY FORM First printing, June 1960 Second printing, June 1960 Third printing, June I960 Distributed to the trade by The Citadel Press Library of Congress Catalog Card No. 60-12740 Designed by Ella Mazel Manufactured in The United States of America by The Haddon Craftsmen, Inc. 3 Publisher’s Foreword How This Book Came to Be It was in the issue of May 25, 1959, that Time Magazine devoted almost a full page in its Business Section to the extraordinary stock- market story of a dancer— Nicolas Darvas. Time told how this complete non-professional, ". . . who ignores tips, financial stories and brokers' letters," was able to make himself a millionaire several times over through the investment methods he developed. This article raised a lot of eyebrows among Wall Streeters who were shocked by Mr. Darvas’ disregard for many of the long-accepted, ordinary investment practices to which they were accustomed. But it also fired the interest and imagination of thousands of investors across the country. We at the AMERICAN RESEARCH COUNCIL, publishers of many of the most widely-used and authoritative investment and business guides, were also impressed by Time's brief outline of Mr. Darvas' successful investment methods. As a result, we decided to approach Mr. Darvas about writing a book describing his techniques. This was not easy—to find him, our chief editor had to track him down in Paris where he and his partner, Julia, were starring on a French television program. There we discovered the remarkable set of circumstances that were to make this unique book possible. First, Mr. Darvas is a showman. His dance act is one of the most exciting international acts in show-business history, and he and his sister Julia have starred in some 34 countries. He is accustomed to being constantly in the spotlight of public attention. Therefore, he had no hesitation, as might many private individuals, in making public the details of the stock transactions, which went into his making a fortune. Perhaps never before in history has any individual so fully exposed his financial dealings to the public eye. Second, it turned out that Mr. Darvas is far more than a spectacular dancer. He is a highly literate individual with a solid background in economics and sociology gained at the University of Budapest; a former sportswriter, journalist and crossword-puzzle editor in his native country; and therefore thoroughly qualified to write a book. 4 As a result, the COUNCIL now takes pride in presenting one of the most extraordinary success stories in the history of Wall Street. It is especially significant not only because this investment record was made by a true nonprofessional and "outsider" who was investing for that legendary "second income", but also because the profits he made were not the result of a lucky killing or chance tip. On the contrary, the investment methods that eventually made Mr. Darvas a millionaire were the result of hard-won experience, years of mistakes and learning from those mistakes. These specific, highly practical methods can serve as a useful guide to every individual investor. We think that Mr. Darvas' techniques, especially his unique "Techno- Fundamentalist Theory," and many of his pithy stock-market maxims—"I just jog along with the trend trailing my stop-loss insurance behind me." "There are no good or bad stocks, there are only rising and falling stocks." "I can become a diagnostician but I can never become a prophet." — will become an accepted part of the pages of Wall Street history. To further clarify Mr. Darvas' approach, the COUNCIL has drawn up and added to his book a number of charts showing his operations in the major stocks that helped him make over $2,000,000 in the stock market in a period of 18 months dating from when he first successfully applied his perfected theory. Mr. Darvas is still a dancer, because that is his profession; and he is still an investor, because he enjoys it and still makes money at it. Everything about him is unorthodox. He has no office, not even a desk for his financial dealings. He works from his hotel room or the bar in the Georges V in Paris, the Dorchester in London or the Plaza Hotel in New York. When he is in New York, his favorite city, he sits every evening at his usual table in the fashionable Oak Bar of the Plaza Hotel with a newspaper page, a telegram, and some figures on a half-sheet of paper. He appears to be relaxing like the others around him—but actually he is studying stock prices and analyzing the market with the brilliant approach he has evolved over the past few years and which has brought him millions. The story of Nicolas Darvas is one of the astonishing legends of today's America. We are proud to be able to publish it in a book, which we believe will be a stock-market classic for many years to come. 5 Table of Contents The Gambler Chapter 1. Canadian Period 8 The Fundamentalist Chapter 2. Entering Wall Street 17 Chapter 3. My First Crisis 30 The Technician Chapter 4. Developing the Box Theory 36 Chapter 5. Cables Round the World 45 The Techno-Fundamentalist Chapter 6. During the Baby-Bear Market 56 Chapter 7. The Theory Starts to Work 63 Chapter 8. My First Half-Million 73 Chapter 9. My Second Crisis 80 Chapter 10. Two Million Dollars 87 Interview with Time Magazine 95 Appendix Cables 99 Charts 108 Index of Stocks 124 6 In the morning of September 3, 1958, the following cable arrived at the Gloucester Hotel in the Crown Colony of Hong Kong: "BOUGHT 1300 THIOKOL 49⅞ . . ." This purchase represented one part of a chain of purchases that were to net $2,000,000 in eighteen months. And this is the story of the events that led up to it... 7 The Gambler 8 Chapter 1 Canadian Period I t was November 1952. I was playing in Manhattan's "Latin Quarter" in New York when my agent telephoned. He had received an offer for me and my dancing partner, Julia, to appear in a Toronto nightclub. This was owned by twin brothers, Al and Harry Smith, who made me a very unusual proposition. They offered to pay me in stock instead of money. I have had some strange experiences in show business, but this was a new one. I made further inquiries and found they were prepared to give me 6,000 shares in a company called BRILUND. This was a Canadian mining firm in which they were interested. The stock at that time was quoted at 50 cents a share. I knew stocks went up and down—that was about all I did know—so I asked the Smith brothers if they would give me the following guarantee: if the stock went below 50 cents, they would make up the difference. They agreed to do this for a period of six months. It so happened that I could not keep that Toronto date. I felt badly about letting the brothers down, so I offered to buy the stock as a gesture. I sent them a check for $3,000 and received 6,000 shares of BRILUND stock. I thought no more about it until one day, two months later, I idly glanced at the stock's price in the paper. I shot upright in my chair. My 50-cent BRILUND stock was quoted at $1.90. I sold it at once and made a profit of close to $8,000. At first I could not believe it. It was like magic to me. I felt like the man who went to the races for the first time and with beginner's luck backed every winner. Cashing his winnings he simply inquired: "How long has this been going on?" I decided I had been missing a good thing all my life. I made up my mind to go into the stock market. I have never gone back on this decision, but little did I know what problems I would encounter in this unknown jungle. I knew absolutely nothing about the stock market. I was not even aware, for instance, that there was one in New York. All I had heard about were Canadian stocks, particularly mining shares. As they had been very good to me, obviously the smart thing to do was to stay with 9 C anadian Period How I Made $ 2,000,000 In The Stock Market them. But how to start? How to find what stocks to buy? You could not pick them out with a pin. You must have information. That was my major problem: how to obtain it. I now realize that this is, in fact, impossible for the ordinary man, but then I thought I had only to ask enough people to learn the great secret. I thought if I asked often enough I would get acquainted with people in the .know. I asked everybody I met if they had any stock market information. Working in nightclubs I meet rich people. Rich people must know. So I asked them. The question was always on my lips: *T)o you know a good stock?" Oddly enough, everybody did seem to know one. It was surprising. Apparently I was the only man in America who did not have his own first-hand stock market information. I listened eagerly to what they had to say and religiously followed their tips. Whatever I was told to buy, I bought. It took me a long time to discover that this is one method that never works. I was the perfect pattern of the optimistic, clueless small operator who plunges repeatedly in and out of the market. I bought stock in companies whose names I could not pronounce. What they did and where they came from, I had no idea. Someone told someone who told me. There could have been no more slaphappy, ignorant buyer than I was. All I knew was what the last headwaiter in the last nightclub I had performed in had told me was good. Early in 1953 I was performing in Toronto. Because of my first extraordinary $8,000 break with BRILUND, Canada was the land of financial milk and honey as far as I was concerned, so I decided this was a good place to go looking for a "hot tip." I asked several people if they knew a good, reliable broker, and eventually I was recommended to one. I must admit I was startled and disappointed when I found his office. It was a tiny, dingy, prison-like room full of books, with strange scrawls on the walls. Later I found out that these are called "charts." There did not seem much smell of success or efficiency. Sitting at a rolltop desk was a busy little man poring over statistics and books. When I asked him if he knew a good stock he reacted at once. He smiled and pulled out of his pocket a dividend check bearing the name of a famous gold company, KERR-ADDISON. He stood up and said: "My friend, take a good look at that. That dividend check is worth five times what my father paid for the original stock. That is the sort of stock everyone looks for." A dividend five times the price of the original stock! This excited me 10