Trading legends: Nicolas Darvas, a dancer who made $2,450,000.00

Posted on November 24, 2006
Filed Under Investments, Trading |

Nicolas Darvas is one of those people who became legendary thanks to his ability to buy stocks. Actually he was a dancer who invented methods to have huge gains in the stock market. Let’s see who Darvas was and why he became so famous.

Escape from Hungary

Hungarian by birth, Nicolas Darvas trained as an economist at the University of Budapest. Reluctant to remain in Hungary until either the Nazis or the Russians took over, he fled at the age of 23 with a forged exit visa and fifty pounds sterling to stave off hunger in Constantinople, Turkey. Sometime later, he met up with Julia (his half-sister) who became his partner in a dancing team that was to become one of the most successful acts in Europe and the United States.

First Stock Purchase

In the 1950’s, after making a profit in some stock of a Canadian mining firm (which he bought from the proprietors of a Canadian dance venue), Darvas was hooked on chasing a quick buck in the Stock Market.

Like many before him, Darvas was convinced that having made an initial profit, he was some kind of natural born stock market speculator. However (again like many before him) Darvas took loss after loss on the Canadian stock market after buying in and out of the market on tips, rumors, and the advice of brokers and newsletters.

Telling himself that the Canadian Stock Market was for small fry, he changed course for the New York Stock Exchange. Here (again) he took loss after loss, buying in and out of the market on the advice of brokers and newsletters. Always seemingly buying at the high - then witnessing a sharp retracement - and selling at the low.

After 5-6 years of losses and sick of buying on the high and selling on the low, and in a fit of desperation, he did not give up.

Books Read Off Hours

During his off hours as a dancer, he had read some 200 books on the market and the great speculators, spent eight hours a day until saturated. He began his studies by reading the following:

* ABC of Investing, by R. C. Effinger.
* The Stock Market, by Dice & Eiteman.
* The Securities Market: And How It Works, by B. E. Schultz.
* Your Investments, by Leo Barnes.
* Profit In The Stock Market, by H. M. Gartley.
* Consistent Profits In The Stock Market, by Curtis Dahl.
* You Can Make Money In The Stock Market, by E. J. Mann.

His top 2 books which he had read almost every week were:

* The Battle for Investment Survival, by Gerald M. Loeb. Published in 1935.
* Tape Reading and Market Tactics, by Humphrey Bancroft Neill. Published in 1931.

Darvas Profits

Darvas ploughed his money into a couple of stocks that that had been hitting their 52-week high. He was utterly surprised that the stocks continued to rise and subsequently sold them to make a rare profit.

Darvas decide to regroup to assess this remarkable occurrence. And it was here that Darvas came up with this approach and plan for trading stocks that was to see him achieve $2,450,000.00 fortune in just 18 months, during the 1957-58 bull market. In total, just 7 short years since his first trade.

Stock Selection

His main source of stock selection was from the Barron’s Magazine. The magazine was usually a week old edition since he was traveling throughout the world performing his dance troupe. He would use cables and telegrams to send his buy and sell stop orders to his broker in New York. From now on Darvas would execute his famous trading plan: selecting stocks with new 52-week highs and suitable spikes in volume coupled with favourable fundamental company research.

This method also showed Darvas remarkable insights into a stock’s price behaviour, often revealing the signs of â€˜inside buyingâ€™ before a company’s release of favourable news to the public.

Time Magazine

At the age of 39, after accumulating his fortune and also being exposed in Time magazine , Darvas was to document his actions in the book, How I Made 2,000,000 in the Stock Market. The book describes his unique “Box System”, which he uses to buy and sell stocks.

View of Wall Street

In the mid 1960’s after his second book Wall Street: The Other Las Vegas was published, it put him at the top of the most hated list of every stock broker in the country. As he explains, “Wall Street is nothing more than a huge gambling casino, bristling with dealers, croupiers and touts on one side and winners and suckers on the other. I had been a winner and was determined to stay one”.

He learned to ignore tips, financial stories, and brokers’ letters. And has never been in a broker’s office.

Bear Markets and Selling Short

There are times when he is out of the market. As he states, “I keep out in a bear market and leave such exceptional stocks to those who don’t mind risking their money against the market trend.”.

Darvas never sold short. As he states, “I have never done it myself because psyologically I am not cut out for short selling. But I think markets have now changed their character so much that all experienced investors should seriously consider it. It is not for the proverbial widows and orphans, though.”. He realized that his system could easily be adapted to short selling.

Maintains Apartments

Also during the 1960’s, it was known that he left dancing, and devoted himself to the world of finance. To keep himself physically active, Mr Darvis maintained apartments at The Dorchester in London and the Hotel George V in Paris.

Success Formula

In his third book, he states “Later, I went on to explore and become successful in other fields, the fashion industry, theatrical producing, real estate are just a few”. Here he claims “the formula for success remains essentially the same.” In the book he illustrates, “the rules to be followed.” . “But one must know the correct route” .

As an international traveller, his heart belongs to Wall Street.

(This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article “Nicolas Darvas” ).