Nicolas Darvas: Dancer and Investor
Biography of Nicolas Darvas:
Dancing Career:
Nicolas Darvas, born in Hungary in 1920, originally trained
as an economist at the University of Budapest. However, his career took an
unexpected turn when he fled Hungary in 1943 due to political unrest, armed
with only a forged exit visa and fifty pounds sterling. He reunited with his
half-sister, Julia, and together they formed a successful dancing duo that
toured Europe and the United States. Their performances included notable
appearances alongside stars like Judy Garland and Bob Hope by 1953.
Transition to Investing:
While on tour, Darvas became intrigued by the stock market.
He began studying market trends and developed a unique trading method. His
approach involved identifying stocks with rising prices and strong upward
momentum, a strategy that eventually led him to significant financial success.
Authorship and Legacy:
Darvas documented his remarkable journey from dancer to
successful investor in his book, "How I Made $2,000,000 in the Stock
Market," published in 1960. In the book, he detailed his trading
principles and the specific techniques he used to achieve his financial goals.
Darvas' story continues to inspire investors and traders, emphasizing the
importance of discipline, research, and adapting to market dynamics.
Nicolas Darvas: The Investor
Early Investment Journey:
While pursuing a career as a dancer, Nicolas Darvas
dedicated his off-hours to studying the stock market. He devoured over 200
books on investing, spending up to eight hours a day immersed in texts like
"The ABC of Investing" and "The Stock Market." His
foundational readings included works by Gerald M. Loeb and Humphrey Bancroft
Neill, which deeply influenced his trading approach.
Nicolas Darvas: Early Success and Determination
Initial Success with BRILUND:
Nicolas Darvas, unable to attend a performance where he was offered
6000 shares of BRILUND as payment, purchased them anyway for $3,000 at 50 cents
per share. Two months later, he saw in the newspaper that BRILUND was trading
at $1.90 per share. He sold his shares immediately, making a profit of $8,000.
This early success fueled his determination to excel in the stock market.
Struggles with Consistency:
Despite his early win, Nicolas Darvas struggled to maintain
consistent success in his trading endeavors. He experimented with various
strategies and followed advice from friends and brokers. This period of trial
and error was marked by moments of elation and control when trades went well,
but also frustration and blame when they did not. Over time, Darvas realized he
was losing money overall, often erasing gains due to frequent trading and
associated commissions.
Realization on Trading Frequency:
During this challenging period, Darvas felt compelled to
trade daily, always seeking new opportunities in the market. However, he
gradually learned that trading frequently did not necessarily lead to better
results. He came to understand that sticking with his initial investments could
potentially yield higher returns over time, compared to constantly chasing new
trades.
The Virginia Railways Experience:
Nicolas Darvas's realization crystallized when he purchased
100 shares of Virginia Railways at 29 ¾ per share and held them for 11 months
with minimal intervention. Upon noticing the stock price had risen to 43 ½ per
share, he sold it and realized a profit of $1,303.68 effortlessly. This
experience underscored the importance of patience and letting investments grow
without unnecessary interference.
Formulation of Trading Rule:
From his successful Virginia Railways investment, Darvas
derived his seventh trading rule, emphasizing the value of patience and
strategic restraint in stock trading. This rule would later become integral to
his renowned trading approach, influencing many aspiring investors and traders
seeking to replicate his success in the stock market.
Development of the "Box System":
Darvas developed his own method, famously known as the
"Box Theory," during the bull market of 1957-58. He identified stocks
showing strong upward momentum and favorable fundamentals, often using Barron's
magazine for stock selection despite its delay due to his travel schedule with
his dance troupe. His strategy involved waiting for stocks to break out of a
defined price range ("box") before buying, always with a
predetermined stop-loss to protect his gains.
Biography of Nicolas Darvas: Dancer, Trader and Investor, Life lessons , strategies , Darvas Box Theory
Financial Success and Recognition:
By rigorously applying his "Box System," Darvas
achieved extraordinary financial success, amassing $2,450,000 in just 18
months. His method, which he claimed sometimes anticipated insider trading
activity, gained attention when he was featured in Time magazine at the age of
39. In his book "How I Made $2,000,000 in the Stock Market," Darvas
detailed his journey and shared his trading principles, inspiring countless
investors with his disciplined approach and innovative strategies.
Legacy and Influence:
Nicolas Darvas's legacy extends beyond his career as a
dancer and investor. His ability to transform his passion for learning and his
unconventional background into a highly profitable investment strategy
continues to resonate with traders and investors seeking to navigate the
complexities of the stock market. Darvas remains a symbol of perseverance and
ingenuity in the world of finance, demonstrating that with dedication and a
well-defined strategy, financial success can be achieved by anyone willing to learn
and adapt.
Nicolas Darvas: Author and Controversy
Authorship and Literary Career:
Nicolas Darvas gained widespread recognition through his
influential book, "How I Made $2,000,000 in the Stock Market,"
published in 1960. This book detailed his unique trading strategies and the
principles he followed to achieve significant financial success. Beyond
finance, Darvas explored and found success in diverse fields such as fashion,
theatrical producing, and real estate, emphasizing a universal formula for
success that he believed applied across different industries.
Controversy and Legal Challenge:
Despite his success, Darvas faced controversy when the New
York Attorney General challenged the accuracy of his financial claims, alleging
that his reported profits were exaggerated. The legal action marked the first
instance under a new law prohibiting fraud in investment advice. Despite the
investigation, which Darvas deemed a misguided attack on his reputation, the
court eventually blocked further probe, citing it as an infringement on freedom
of the press.
Investment Philosophy and Ethical Stance:
Throughout his career, Darvas adhered to a disciplined
approach in investing, famously avoiding short selling due to his psychological
aversion to the practice. However, he acknowledged the evolving nature of
markets and suggested that experienced investors should consider short selling
as a strategy suited for changing market conditions, albeit cautioning against
its suitability for conservative investors.
Nicolas Darvas passed away in 1977. His legacy lives on
through his influential book and innovative trading strategies, which continue
to inspire and guide investors seeking success in the stock market.
Evaluating the Darvas Box Theory
Limitations of the Darvas Box Theory:
Critics of the Darvas box theory argue that Nicolas Darvas'
initial success was largely due to trading during a bullish market. They
contend that attempting to apply this technique during a bearish market may not
yield similar results and could result in overall losses if the expected trends
fail to materialize.
Evolution of Technical Strategies:
Since Darvas' time, the practice of using trailing stop-loss
orders and monitoring trend momentum has become commonplace in technical
analysis. Many modern trading strategies incorporate these principles,
suggesting that the enduring value of Darvas' theory lies more in its role in
cultivating trader discipline and risk management skills.
Emphasis on Discipline and Risk Management:
One of the significant contributions of the Darvas box
theory is its emphasis on disciplined trading practices. Darvas himself
stressed the importance of meticulously recording trades and analyzing outcomes
to learn from successes and mistakes. This systematic approach encourages
traders to adhere to a well-defined plan, enhancing their ability to manage
risks effectively over time.
Conclusion:
Nicolas Darvas's life and career reflect not only his
success in the stock market but also his resilience in facing legal challenges
that questioned his financial claims. His writings continue to inspire aspiring
investors with his disciplined approach and insights into adapting to market
dynamics. Darvas remains a figure of interest in both financial circles and
broader discussions on ethics and strategy in investing.
Nicolas Darvas's life serves as a testament to the
possibility of achieving financial success through unconventional paths. From a
dancer fleeing political turmoil to a self-taught investor, Darvas demonstrated
resilience and innovation in both his careers. His legacy endures through his
influential book and continues to influence aspiring investors seeking to
emulate his strategies and mindset.
