by Staff reporter

Where are the customers' yachts?

The more things change, the more they stay the same


In a short and amusing tale, “Where Are the Customers’ Yachts?”, Fred Schwed walks the reader through various roles on Wall Street, taking care to share his mockery evenly. The subtitle, “A Good Hard Look at Wall Street”, does not hint at the humour to be found throughout the book. The financial journalist Jason Zweig mentions in his introduction that this is the only financial book he’s read that will “provoke you, teach you, and crack you up all at once”.

The author, having learnt that titles weren’t protected by copyright law, proposed a title of “The Adventures of Huckleberry Finn”. Having been rejected by the editor, it was replaced by a line from an ancient story recounted in the book. An out of town visitor to New York city, having been told that the anchored yachts belonged to bankers and brokers, asked naively, “Where are the customers’ yachts?”

The book is a classic. Written in 1940, but based on Schwed’s time on Wall Street from 1922 through the financial crisis of 1929, he tries to “paint a picture of thousands of erring humans, of varying degrees of good will, solemnly engaged in the business of predicting the unpredictable.”

The trauma experienced during the 1930s depression, the problem of asymmetry of information, and the then recent introduction of the Securities Exchange Commission help to explain the merit of writing such a book at the time. What it becomes for us today is a humorous look at the ease with which the industry fooled themselves and their clients. I’d venture that not much has changed.

Scattered throughout the book are funny lines which reveal truths about our industry that are as valid today as they were then.

On the validity of financial predictions: “It seems that the immature mind has a regrettable tendency to believe, as actually try, that which it only hopes to be true… Now if you do someone the signal honour 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.”

On bankers' inability to do nothing: “Then, suddenly and hysterically, he does something which turns out to be extremely unprofitable. He is not a lazy man.”

On losing money: "Like all of life’s rich emotional experiences, the full flavor of losing important money cannot be conveyed by literature. You cannot convey to an inexperienced girl what it is truly like to be a wife and mother.

There are certain things that cannot be adequately explained to a virgin by words or pictures. Nor can any description that I might offer here even approximate what it feels like to lose a real chunk of money that you used to own.”

On enjoying contact with great bankers: “It is easier for a poor man to go through the eye of a needle than it is for him to get past a rich man’s receptionists.”

On technical analysts: “I once suggested to a chart reader that since I wasn’t a customer he should slip me the wink on this tripe. It was a social error: he was deeply offended as if I had said something gross about his religion - which, I suppose, I had.”

On buying shares on margin: “Eventually the customer finds himself throwing good money after bad, until there isn’t any good money left.”

On short sellers: “Before October, 1929, no one objected to short sellers except their own families. The families objected to going bankrupt.”

On stockbrokers: “When the market gets dull enough, some of the brokers begin to starve. To some people, this seems a beautiful and desirable end in itself, whatever happens to the national economy.”

On the speculator: “He is an incurable romantic and usually egotistical. His mind is fast, active, and resourceful, and, in a peculiarly limited way, shrewd.

That is, he is shrewd in everything save that he is constantly, day by day, laying himself open to the possibility of being ruined.” I suspect that were the book to be rewritten today, the author would be unsurprised at the amount of speculation still going on. This book belongs on the shelf every person with a sense of humour. When you are done laughing take care to consider whether you are on a slippery slope yourself. It becomes easy to fool others when you have already fooled yourself, and as physicist Richard Feynman warned, “You are the easiest person to fool”.

Pierre Tajlaard, Fiscal Private Clients

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This edition

Issue 72