“..long long ago, an out-of-town visitor to New York was admiring the elegant vessels harboured off the Financial District; "Those are the bankers' and brokers' yachts!" exclaimed the guide. "But where are the customers' yachts?" questioned the naïve visitor in response...” (Fred Schwed)
The Origins of the Title of the Book and the Author
The title of the book comes from a story about William R. Travers in 1870, who after admiring the rows of expensive boats owned by the bankers and brokers in the harbour at Newport, Rhode Island is reported to have asked "Where are the customers' yachts?"
Mr. Travers later made a fortune from his investments but probably not by listening to his brokers advice. Fred Schwed Jr. the author of the book was a professional trader who after having lost a huge amount of money in the 1929 crash left the Street never to return but left us his views on the so called professional traders for us all to enjoy.
The Content of the Book – In Investing Nothing Has Changed
“The information contained herein, while not guaranteed by us, has been obtained from sources which have not in the past proved particularly reliable” (Fred Schwed)
This made me smile and sets the tone for the book which is witty and entertaining throughout as Schwed shows how brokers prey on clients greed and naivety to separate them from their money but while Schwed gives banks and brokers a good bashing, he doesn't think much of the greedy client who wants their advice either. The majority of Forex traders lose just like share traders lose and they tend to do so due to their emotions wanting easy returns and the brokers are more than happy to take their money and either watch them lose it or help them lose it.
To give you a flavour of the book here are a few quotes and after reading them, you will see nothing has changed in the last 100 years in the world of speculation and investment.
“Financial statistics can be deceiving because they can give a lopsided view. It is human vanity to think the market can be predicted in two+ years. Look at how many on Wall Street were fooled by the crash. Wall Streeters tend to be romantics and dreamers” (Fred Schwed)
The above quote is so true and I have seen numerous Forex brokers predicting, years into the future of what a currency might do and there always wrong – because of course conditions change but its not just brokers who like to predict its private traders as well. Many traders devise trading strategies which they think can make them a regular income but of course the market is always changing!
“Customers buy when stocks are high and sell then they are low. Chart reading doesn't work. (I think it does in identifying trends, but of course there is no guarantee the trend will continue.)” (Fred Schwed)
I don't entirely agree with the above quote, because technical analysis can be useful for calculating the odds and trading probabilities but most traders, see it as science and treat it as the gospel truth. Traders continually think they can beat the market and continually lose because they don't see charting as an art – they see it as a science.
“Customers tend to misuse margin. They also do not like to have a lot of cash in their account. They will tend to churn their account to keep from being bored.” (Fred Schwed)
Brokers churn client accounts as the book notes but the client also does it and this happens today in the Forex markets. Traders think they should be trading to make money and trade far to many signals and end up losing. One of the keys to successful Forex trading is to only trade when the odds of success are good – over trading in any financial investment, will reduce the odds of success but traders never learn this and never will.
“History shows investment trusts aren't very good. There is strong temptation for them to be dishonest because of the great sums of money they manage. Clients demand a high return which causes the managers to take risks.” ( Fred Schwed)
Managed money in Forex or any other investment is a bad idea – always has been and always will be with very few managers being able to make more money than the prevailing interest rate or stock tracker fund.
“Customers who have lost money tend to think they have been robbed rather than take responsibility for their actions. Bad luck plus bad brains” ( Fred Schwed)
How many stories do you read on line about brokers stealing money from clients by price manipulation? You read the stories all the time and just as in yesteryear the trader who losses money blames everyone but himself for his losses. Anyone has the potential to win at Forex trading but they lack the skills and mindset to do so and need a scapegoat for why their trading strategy lost which is normally their broker. These traders need to grow up and take a look at themselves and understand, their responsible for their losses – no one else is.
Schwed's point is that investors will always be greedy and lose and they will always believe, they can make huge gains without taking any real risk. This is very true of the Forex industry, when you look at the way its presented online. Brokers, system sellers and gurus, all feed the investor with a story which people should know is not true, of easy money but greed gets the better of these traders and they lose. This book was written about share investing but applies to Forex trading and all other investment mediums.
Brokers will continue to get rich, because they feed a craving for instant wealth with little or no downside risk – is it the brokers fault?
Not really in my view people should no better than to believe in easy profits. When will investors ever learn? The answer is they won't and the banks and brokers, will continue to offer them investments which won't make the client rich but the broker will do just fine. Where Are the Customers' Yachts? Is funny, full of good advice and just as relevant today as it was when it was first written.