Fred Schwed Jr.’s classic, Where are the Customers’ Yachts? was first published in 1940. The title was borrowed from a quip William Travers made in the late 1800s.
As the story goes, Travers was with some friends in Newport to watch a boat race. After learning several boats were owned by Wall Street brokers, he asked, “Where’s the customer’s yachts?”
Schwed’s book was one of the first to mix humor with finance to warn people of Wall Street’s shortcomings…starting with the title. Wall Street has a history of enriching itself at the customer’s expense. But he didn’t stop there. He knocked Wall Streeters for their continual need to predict the future — and continuously getting it wrong.
However, the book wasn’t the first time Schwed blasted Wall Street for its shortcomings. A short piece, he wrote, in the March 1939 issue of Forum and Century magazine offered a glimpse of what was to come.
Schwed went after Wall Street for the endless confidence in knowing what happens next, the ignorance of uncertainty, the endless search for patterns in the market, CEOs playing the blame game, and the customers for being gullible.
You can find some of the humorous highlights below.
On Wall Street Speak
If you ask Joe why there will be a little rally after lunch, he will tell you in no uncertain terms. He will say that he observes that the volume is decreasing on the down side, that he can see that steels are strongly pegged just above the last previous lows, and that “they” (whoever “they” are) are beginning to accumulate the second-grade carriers. “But it won’t go very far,” he may add (proving that at heart he is no wild-eyed optimist — more the old-line banker type): “they wouldn’t want to see this market run away.”
It is a marvelous thing, the way this lingo is universally used in board rooms, not just in New York but from coast to coast. It is as though someone had invented an Esperanto for saying absolutely nothing in a variety of ways.
We expect a child to grow up and learn what is reality, as opposed to what are merely his passionate hopes. This, however, is asking too much of your romantic Wall Streeter — and they are all romantics or they would never have chosen this business, which is a business of dreams. They continue to dream of conquest, coups, and power, for themselves and for the people they advise.
Some Wall Street men manage to shed these, given sufficient years. But the ultimate dream they almost never shed: that there is a secret, with meaning, in the rise and fall of financial enterprises — that a “close study” of this and that will prove something; that it will tell the initiate when there will be a rally or give the speculator a better than even chance of making a killing or guarantee for an estate a safe 4 percent for a few generations. All these things are demonstrably unpredictable, but the truth is too bitter to look at with open eyes.
The croupier at the roulette table does not claim that he knows something about the order in which the numbers will come up. He just sees to it that the bets are properly paid off and that the house isn’t gypped — which is a job requiring competence.
But no Wall Streeter is willing to be just a croupier. He insists that he is also a prophet, a scholar, and a magician with money.
It is his claim that he can discern in this jagged line a pattern of behavior which reproduces itself and that certain of the wobbles tell him when it is about to do it again. His technical jargon contains such phrases as “head-and-shoulders formation,” “double tops,” “double bottoms,” and “breakaway gaps.”
There has always been a considerable number of pathetic dopes who busy themselves examining the last thousand numbers which have appeared on a roulette wheel, in search of such a repeating pattern. Sadly enough, they have usually found it…
As a science, I should say that chart reading shares a pedestal with astrology; but most chart readers have far too much education and mental discipline to consider astrology seriously.
The president of any other sort of corporation has a comparatively easy time. Not only is his balance sheet Greek to most of his stockholders, but he easily explains his losses as due to the Administration, the drought, the war scare, the Administration, prohibitive costs, and the Administration.
On Managed Funds
The principle of “managed” investment trusts is absolutely sound, granted only one premise. (I am not taking up the subject of “fixed” trusts, because I always wind up losing my temper over them.) The premise is that there are somewhere people of such experience and insight that they can predict with some sort of accuracy the future behavior of securities…
It is as simple as this: If you wanted to win the class-B golf championship at your country club and the rules permitted you to hire Gene Sarazen, at a reasonable fee, to make your shots for you, what an egotistical fool you would be to play the shots yourself! Well, your money is, no doubt, more important to you than your golf score — but you follow the thought.
The catch is, I am afraid, that there is demonstrable skill involved in playing golf but little evidence that there is any in managing portfolios.
On Blaming Wall Street
Your point, which is expressed so vigorously, is that Wall Street men are not such dunces at all; that they are crooks and thieves and very clever ones to boot; that they sell for millions what they know is worthless; that, in short, they are villains, not children.
That is certainly a widespread point of view. People would rather believe that they have been robbed than that they have been fools on the advice of fools.
On Eliminating Speculation
Wall Street needed the SEC just as baseball after 1919 needed Commissioner Landis. But people who are interested in baseball are more realistic than people interested in Wall Street. No fan expected that Judge Landis would do more for the game than keep it reasonably honest. They did not expect him to improve the quality of the fielding and hitting. Nevertheless, a considerable part of the public seems to be hoping that the SEC will make speculation safer.
These credulous individuals are reminiscent of the timid soul who said at the beginning of the poker game, “Now boys, if we all play carefully we can all win a little.”
The Wall Street Dream Market