Book Review: Nicolas Darvas, How I made $2 Million - Introduction

Over the next few weeks I will be reading the book by Nicolas Darvas: How I made $2,000,000 in the Stock Market, which describes the approach Darvas used to build a fortune in 18 months through successful stock market speculation. I expect some of Darvas' techniques are relevant to speculating or investing in all-time high stocks. Along the way I will post quotes and key points from each chapter. This post is about the preface and the author's introduction.

The preface is written by Lyle Stuart, an interesting man by all accounts, who also published several books on gambling among his many titles. Stuart recounts a few of the interactions he had with "Nick" Darvas over the years, and paints a picture of a sharp and likable man who "won at almost everything he did" but also took the time to sun himself on the beach while traveling the globe as a ballroom dancer. Evidently neither Stuart nor Darvas thought very highly of Wall Street and Stuart says this book and Darvas' previous book Wall Street: The Other Las Vegas led to a sharp change in "the way customers perceived their brokers and brokerage houses."

Darvas then spends a few pages sharing anecdotes about people he encountered that thanked him for writing his book (the first edition) and these interactions led him to putting the book back into print. He then asks a question that I had been thinking, and what I assume most others also wonder:

"Had I been extraordinarily lucky? Had I been caught in the momentum of a runaway bull market in which even a fool could do no wrong? Or was my approach so sound that it would work in almost any market? The fact is that How I Made... has withstood the careful scrutiny of time"

He reflects on his success:

"I built a fortune with serenity by avoiding premature selling yet making an exodus from most of my stocks with the use of a single tool: the trailing stop-loss"

And his method:

"I discovered no loss-free Nirvana. But I have been able to limit my losses, without compromise, to less than 10 percent"

"Profits are a function of time, and so good reasons have to exist to keep a profitless purchase longer than three weeks"

Darvas also states that the first printing of his book had upset the "powers that be" and led the American Stock Exchange to change its rules about stop-loss orders.

Finally, Darvas ends his 1971 letter with a disclaimer of sorts:

"My method obviously wouldn't work for everyone. It worked for me. And, by studying what I did, I hope you find this book helpful and profitable"

I hope so too... more next week.