In this week’s blog post, I will be talking about a book which was recommended by billionaire Warren Buffett during the Berkshire Hathaway’s annual shareholder meeting. The book is called “Where Are The Customers’ Yachts?: or A Good Hard Look at Wall Street” by Fred Schwed, Jr. The title of this book refers to the story of a visitor to New York who admired the Yachts of brokers and bankers, and curiously asked where all the customers’ yachts were. I listened to the 4 hour audiobook version, and would definitely recommend this book to anyone who is trying to get into investing or wants to know more about how Wall Street operates.
This book talks about a wide range of topics such as: how buying/selling of stocks work, psychology of speculators – how they think and act, tendency of individuals to predict the future using charts and statistics, what’s it like trading on margin, market manipulation, SEC regulations, emotions involved with losing money, an overview of trading options, etc. I will discuss 3 important concepts and quotes from the book to give you an overview of the kind of ideas covered.
- Greed is a dangerous emotion, which arises from our speculative nature. The author covers this concept in detail. He talks about difference between a speculator and an investor. Fred says, “Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little.” He also talks about how an individual might not have money to feed his family, but that same individual will miraculously always have money to cover his margin call.
- I am sure all of you have googled something along the lines of “Stocks to buy right now”. Unfortunately, the results that pop up are not necessarily the “best buys”. The author says, “The pathetic fallacy is that what are thought to be the best are, in truth, only the most popular, the most active, the most talked of, the most boosted, and, consequently, the highest in price at that time. It is very much a matter of fashion, like Eugenio hats or waxed mustaches.” While talking about stocks, Fred also covers the difference between price and value, which is an important concept for an investor to understand.
- Everyone wants to know what the future holds. Will you be making money? When you ask your money manager/financial salesman about the future financial performance of a stock, you are asking your money manager to speculate. The truth is, no one knows with certainty if the market will skyrocket or nosedive in the future. The author says, “For one thing, customers have an unfortunate habit of asking about the financial future. Now, if you do someone the single honor of asking him a difficult question, you may be assured that you will get a detailed answer. Rarely will it be the most difficult of all answers – “I don’t know”.” A detailed answer could be something technical such as the manager believes that the stock is going up because there is a heavy volume of buying or the stock is already in the oversold territory or something that will make you believe the hypothesis is the fact.
Hope you learned a little and found this blog post helpful. We talked about Where Are the Customers’ Yachts, which was a book recommended by billionaire investor Warren Buffett. As always, you can sign up for our mailing list here. Like us on our Facebook page here. Thank you!
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