#12 – Where Are The Customers’ Yachts? Fred Schwed Jnr BOOK REVIEW

January 28, 2018

There is an apocryphal story of a summer day in 1870 when friends of a major short-seller, William R. Travers, got together by the shores of Newport, Rhode Island. They were admiring the enormous yachts of Wall Street’s richest brokers. After gazing long and thoughtfully at the beautiful boats, the short-seller asked wryly,

“Where are the customers’ yachts?”

The obvious implication is that the brokers get rich off the backs of their customers, and thus Wall Street is a scam [1]. This would lead you, as it did me, to expect Schwed’s book to be an indignant diatribe on the evil of Wall Street [2] but it’s nothing of the sort. This book is about farce. The central theme Schwed pushes throughout Where Are The Customers’ Yachts?, written in 1940, is that the “masters of the universe” [3] are deluded buffoons tilting at windmills. Some get rich, most don’t, but all of them are scrabbling around thinking they’ll make it big and it’s pure luck who succeeds and who goes broke.

Where are the customers yachts

I worked in Finance. I spoke to a lot of brokers, traders, hedge fund managers, mutual managers, compliance officers, salesmen and so on. Although many were very smart and very sincere men, I came away thinking they were indeed deluded. There is no there there. They may as well be divining financial performance from animal entrails [4]. Here’s an example, where Schwed talks of chartists – a fringe element who now call themselves “technical analysts” and “swing traders”.

“There have always been a considerable number of pathetic people who busy themselves examining the last thousand numbers which have appeared on a roulette wheel in search of some repeating pattern. Sadly enough, they have usually found it.

I once suggested to a chart reader, who was explaining his theories to me, that since I wasn’t a customer he should slip me a wink. It was a social error; he was as deeply offended as if I had said something gross about his religion – which, I suppose, I had.

A busted chart reader, however, is never apologetic about his method – he is, if anything, more enthusiastic than the solvent devotee you may run across. If you have the bad taste to ask him how it happens that he is broke, he tells you quite ingenuously that he made the all too human error of not believing his own charts.” [page 37-39, excerpts]

Note the tone of Schwed’s language. He isn’t reaching any theoretical consideration on the merits or demerits of the chartist approach. He’s instead making a (facetious) factual reference that the chartists he knows personally are all broke and that their thinking is more like the religious fanatic than the dispassionate investor. He’s interested in the psychology. He’s explicitly stating that the chartist is sincere in his folly. He’s a fool, not a crook.

All that remains of my interest in financial markets is the psychology of them. It’s pretty obvious that the entire system of financial expertise is hopelessly bankrupt both morally and intellectually. This became particularly clear to me when workmates were studying for their Chartered Financial Analyst (CFA) exams. These are brutally-tough three-year exams which are a level above those who’ve already passed their Chartered Accountant exams [5]. My team were very smart young people with solid maths and lots of experience of the investment business and they all struggled to pass the CFA and spent the whole time stressed out. They’d use their annual holiday just for study and revision time. I stayed well away.

The thing is, the syllabus of the CFA is all bullshit. It’s an attempt to “do a Friedman” [6] on investment theory. It’s all built upon spurious assumptions, fake economics, and the conclusions don’t pass the smell test. Just look into the Capital Asset Pricing Model if you want to disappear down the pseudo-science rabbit hole [7].

Schwed isn’t interested in why something like the CFA is bullshit, because that’s theory. He just wants to note two things, (i) it’s of no help in making successful investments, and (ii) the people who believe in it have the psychology of deluded fools.

Financial Bubbles

A total utter coincidence, yesterday

Most of Where Are The Customers’ Yachts? is a survey of the different participants in financial markets. So there is a chapter on financiers and seers, one on customers, one on investment trusts, one on short-sellers, and so on. Schwed considers them all fools who are easily-led and financial products little different to the wicker baskets passed around in insane asylums

Doctor to patient in room one: “Here’s some wicker, make a basket. It’s good for your inner calm and will keep you busy.”

[one week later takes completed basket from patient]

Doctor to patient in room two: “Here’s a basket. Unravel it. It’s good for your inner calm and will keep you busy.”

Even if, somehow, there was a legitimate scientific basis to financial investment [8] you still couldn’t predict it because of PvP. In video games there are two basic forms of play: Player vs Player, and Player vs Environment. In the latter you master a skill and then beat the levels. The levels themselves remain the same so your progression in the game lies in better handling the static challenge they throw at you [9]. This is how you can go from being rubbish at Super Mario 3 to speed-running it in a snip under 51 minutes. Watch some “no hit” playthroughs of Dark Souls and Bloodborne for how much skill these people have.

Everything changes when there’s another player who has a theory of mind. Now everyone is second-guessing everyone else. Most interesting things in the world are PvP not PvE. This holds in sport too: the 100m sprint is PvE, as is most track and field, whereas the interesting sports are all PvP [10].

Financial markets are PvP.

Schwed also goes into detail about the problem of hiring expertise. He only lightly covers the agent-principal problem, that you hire someone for help you and they instead use the opportunity to help themselves [11]. Schwed is more interested in conundrums and psychology. Here is a lengthy example:

“Let us have 400,000 men (and women) engage in this contest at one time. We line them up, facing each other in pairs, across a refectory table miles long. Each player is going to play the persons facing him in a series of games, the game chosen being a matter of pure luck, say matching coins.

The referee gives a signal for the first game and 400,000 coins flash in the sun as they are tossed. The scorers make their tabulations, and discover that 200,000 people are winners and 200,000 are losers. Then the second game is played. Of the original 200,000 winners, about half of them win again. We now have about 100,000 who have won two games and an equal number who have been so unfortunate as to lose both games. The rest have so far broken even.

[by the fifth game] these 12,500 have now won five straight without a loss and are no doubt beginning to fancy themselves as coin flippers. They feel they have an “instinct” for it. However, in the sixth game, 6250 of them are disappointed and amazed to find they that they have finally lost, and perhaps some of them start a Congressional investigation.

[by the ninth game] this little band [of a 1000] has won some nine straight without a loss, and by this time most of them have at least a local reputation for their ability. People come from some distance to consult them about their method of calling heads and tails, and they modestly give explanations of how they have acheived their success [12]. Eventually there are about a dozen men who have won every single time for about fifteen games. These are regarded as the experts, the greatest coin flippers in history, the men who never lose, and they have their biographies written” [pages 126-127]

Surely no-one is so stupid as to believe this, you may say. Well, go have a look at the marketing literature of mutual funds. Look at the league tables where each fund manager is sorted into quartiles and, if they are first quartile, they loudly trumpet it in the literature. They are telling you they won the last few coin tosses.

Schwed does hold out the theoretical possibility that performance is more than simply luck but he laments that no-one has ever been able to explain to him what that theory is.

Crypto cunt.jpg

“There is strong support at £6k but the candlestick pattern suggests a double bottom and possible resistance at £7k”

If you liked this post, you’ll probably urge me to explain my thoughts on the recent speculative mania in crypto currency and how neatly it fits in to both Schwed’s opinion on chartists and Time Life’s on ancient shamans and diviners. It’s all about the psychology. Till then, buy Daygame Infinite. It’ll make you rich [13]

[1] No surprise it’s a short-seller who said this. Their role is to pop the bubbles of financial markets and the entirety of government, regulation, and popular mood is lined up against them. Nobody likes the child who mentions the Emperor has no clothes.
[2] And thus, likely, Jews too.
[3] As they were called in the 1980s in the time of Gordon Gecko, before Charlie Sheen had AIDS.
[4] The parallels with shamans and seers in the Time Life history of the ancient world is fun. There appears to be very little difference between them and the Wall Street shamans and seers.
[5] I guess you’d call it the Daygame Infinite to the ACA’s Daygame Mastery.
[6] Milton Friedman tried desperately to cloak the pseudo-science of Economics in the clothing of Physics by drowning it all in equations, graphs, theorems and other some such. It was an abject failure. You might as well do the same with dog-petting or poetry-recital and call those sciences.
[7] For as long as economists misunderstand what money is, they’ll get economics wrong. So long as they misunderstand human psychology, they’ll get economic prediction wrong.
[8] There is, but it’s very simple and experts can’t charge high fees for it. The value of an asset is the net present value of all future cash flows. The skill in investment is to accurately predict those cash flows and then apply a suitable discount % rate to them. The difference in those judgements of two inputs explains the whole difference in valuations of an asset. Note value and price are not the same thing – price can be influenced by other factors.
[9] Artificial intelligence will shift the dynamic into PvP if it’s good enough, in that it simulates a player who can adapt to your strategies. If the AI can’t, it’s still PvE.
[10] The acid test for PvE is “would my strategy change if my rivals change theirs?”. The 100m sprint is eight PvE races running side-by-side. No matter what the other seven people do, your strategy always remains “cover the 100m distance in the quickest possible time”.
[11] This is a huge problem in Wall Street but he doesn’t cover it because it comes under the “crook” province which is outside of his scope. A great example is how all the major broker-dealers like Lehman, Merryl, Morgan, and Bear switched from partnerships to public companies and immediately the managers began a “bankruptcy for profit” model to gouge the new owners.
[12] I don’t remember where I heard it, but I like this sentiment: “when I hear investors giving advice on how to get rich, I’m reminded of last week’s lottery winner explaining how he chose his numbers.”
[13] Nick, where are all your customers’ yachts? I’m asked.


  1. Great post, coin toss metaphor really resonated based on what I know of the kids who went to school with me and ended up at top firms on wall street. Excellent distillation of some higher level concept.

    Interested in this: “The value of an asset is the net present value of all future cash flows” — cash flow is specified as ‘cash’ to denominate price instead of value?

    As for value vs price… is value something like whatever is attributed to a thing by the subjective value of it in the eyes of consumers… whereas price is the current going rate for said thing based on additional external factors (say, government subsidies or even taxation)? [Short version: An asset is simply a right to a share of future cash flows. You value the asset according to your best estimation of those cash flows. The price is what people pay for that right. The skill to investing is paying a price that is below the value then either holding the asset or selling it at a price above it’s value. In this case I’m not using the Austrian subjective determination of value, but a financial one. Something like Bit Coin is so obviously a speculative mania because there is no future cash flow and thus it’s not an asset. It’s rising price is purely ‘greater fool’ theory. K.]

  2. Well, Krauser, how does this relate to Game in your Opinion?

    I mean, are PUAs chartists? It’s a pure PvP environment like you said, so how do we explain that we found a pattern in such a thing?

    I love the theory and tactics etc, but my mind can’t stop creating this analogy: There are some things that are consistent, for which we can create systems, like a factory. A factory makes widgets consistently, it is controlled, you go on a Monday or on a Thursday, everybody knows widgets will be produced on such days.

    But with game, there are good streaks and bad streaks. You can do everything right and still have a week or a month of no results, which sounds to me like randomness, that it’s not the method that is creating the outcome, but pure luck.

    “People tend to think that streaks in random sequential events are rare and remarkable. When they actually encounter streaks, they tend to consider the underlying process as non-random.”
    From: https://www.sciencedirect.com/science/article/pii/S0010028510000368

    I am not done with Daygame Infinite, and I love you K, you’re one of the most brilliant minds of our generation. Yet, my knowledge of statistical randomness messes with me, especially in how there are streaks in the results in game, and this article made it even more salient: PUAs sound and behave like religious zealous chartists and it is the ultimate PvP game, because it is you playing with tons of girls who are charting their course and varying it in real time.

    If it is addressed somewhere in Daygame Infinite, let me know. If not much, what are your thoughts on this? [I address it in the introduction where I talk about the percentage game, then again when I talk about ‘the game of daygame’. It’s important not to confuse investment with speculation. Think of the difference between a factory and a poker game. At the end of the week the factory has created products that have a value to customers and thus some economic activity took place. In the poker game there’s exactly the same value but it’s simply been reapportioned. You could even say value has been destroyed because they wasted a week to end up with exactly the same net result. Daygame is more like the factory. We aren’t reapportioning a set number of lays, we are engaged in creating something. We are subject to the same uncertainly, mis-steps, mis-apprehensions and risk of failure as an investor in factories but, at it’s core, we are still investing in creation. We are not simply shuffling paper around. K.]

    • Thank you K. I get what you mean with investment vs speculation. I wasn’t making that distinction before.

      And I want also to say I am grateful for Daygame Infinite and all your previous books, especially the memoirs that showed the true human side of the Game. Beyond supporting you and exchanging value for value, know that you have changed a life. That in this age of feminized men, and of rubbish misinformation about dating that sends naive trusting guys into dead ends, you are a voice of truth that helps men figure out how to live the life that they want. Personally, my life is MUCH better because you exist. [Thanks for your kind words. Can I interest you in a 2nd copy of Infinite? 😉 K.]

      • I am getting a second copy of the color version of Daygame Mastery, so my support is extending further to you anyway 😉

  3. Nick, you are on a roll recently, pumping out observations that are sharp like a razor. Your side blows to the imbeciles in society at large are a highly entertaining read. I can’t help thinking that – in comparison to another prominent and respected day gamer – you stepped one level up, while his content is getting increasingly generic, becoming a caricature of himself. [Thanks. Generic trash sells best, I’m afraid. Just look at the roaring success of Mark Manson’s recent snake oil. K.]

    • I think it would be great if you wrote a post detailing your criticism of what Mark Manson teaches that you disagree with.

      It will get some people from his side to our side here as they’ll flock here googling his name and get the persuasive arguments why what he peddles is shyt.

      I personally remember an old interview of yours where you recommended his dating book. Then as you evolved, you saw it as having many wrong and stupid ideas. So personally I am curious on what created the change for you and what you truly disagree with. [I liked it in 2011 when I’d had 2.5 years in the game. I see through it now. Manson never established his bona fides and never had any technical advice worth hearing. He just said a few things that sounded clever and were easy to believe. I wouldn’t recommend Models now. K.]

    • I bought “Models” back then and – against better judgement – even used one of my Audible credits for the audio version of his latest work before I stopped consuming self-help material. At some point you realize it is all a variation of the same old themes. After a short while, I put it aside. It wasn’t even that I could not give a f*ck. I felt triggered and profoundly annoyed by it, which always happens when someone tries to put on a show to impress others. The same happens with success porn. Hey, I got up at 4:30 a.m., already went to the gym and now I am DOMINATING my business. [I won’t review his new book because I’d then have to read it rather than skim it while waiting for a flight connection in the airport bookstore. He’s a snake oil seller and red flags aplenty that he’s not who he presents himself as. Just look at his eyes and smile in his photos on Google. It’s really simple: 1. Write what people want to hear 2. Make it mostly “mindset” so they feel like just reading it is that same as making progress. 3. Put a few swear words and light red pill ideas in it, imply the mainstream isn’t happy that your book has become popular. 4. Tell people again how wise they are to have bought your book. 5. Market it hard. Of these, (5) is the only bit that requires actual skill and Manson has done a great job on that. K.]

    • +1 on generic trash selling best. I know real well heh.

  4. I’m a trader and i find this article very accurate.
    But Mr Krauser , dont you think that this logic is also applicable to Game , and that all PUA’s belong to the 1% of lucky people who think they truly found the system . But in reality it’s all appearance of logical patterns in a world of complete uncertainty and hazar ? basicly it’s a numbers game and there is no special tricks to ignite that hidden attraction ? [I’ve addressed this point in Daygame Infinite. K.]

  5. FYI, can’t get enough of anoncon. After your recommendation I’ve been reading his blog fervently; the r/K political world view was the final missing piece for everything to click in my mind regarding the current landscape we’re in. I’ve only been following politics for a year, but this stuff is brilliant. So simple yet so elegant. Now I can see why you’ve been such a proponent of r/K in PUA (before, it seemed almost like a pet theory, vaguely applied and a poor fit… but that’s because without the political backing it’s impossible to understand it properly). [AnonCon was a missing piece for me too. It elegantly summarised a range is disparate thoughts I’d been having but couldn’t codify neatly. K.]

  6. Okay, actual question, in vein of what you’ve been posting recently:

    You’ve mentioned the day of the rope before. I always took it as a bit facetious. A nice fantasy, but unlikely to actually occur.

    Now my view is shifting. Maybe it’s something that *can* actually occur. You’ve thought about this for a longer time, so the question is : what do you see the day of the rope as, practically? What can actually happen, given the police state much of Europe is under? What will it look like in practice? Revolution? Civil war? In fairly “civilized” societies, is there enough will in the people to take their countries back by force?

    Would love an answer. “Drive out the invaders and hang the traitors,” when stated like that, is almost impossible to envision… but that might be a product of my extremely liberal “hold hands and sing kumbaya” public schooling from k-12. [History shows that human populations get very very violent when roused. You only need go back to the 1945 reprisals in Europe. Our current apathy is historically unusual. That said, I think Trump is creating a third way that reaches the same end point but without bloody civil war. I hope it succeeds. K.]

  7. Your post K reminds me of this movie clip:

  8. The human mind is programmed to try and find patterns, its why when you look into the sky you can see faces in the clouds. In the same way chartists / TA sees patterns where there often aren’t any. In daygame, there is an analogy, where people say or do something which gets a positive result a few times and they extrapolate that this must have been the cause. From this you get repetitions of mantras and cult like behaviour (eg “I just saw you, I thought you looked nice …”).

    On the markets stuff, most finance professionals have an over inflated sense of self worth. Since the hiring policy at most institutions since the 90s required straight As / Top class degrees you get a lot of book smart guys in the industry. They are hardworking and conscientious but the type of guys who follow authority figures (they were the kids at the front of class doing exactly what the teacher told them to do). IOW pure (high) betas. Therefore there is a lack of independent critical thought.

    Fundamental analysis is useful in the very long term, just as it would be if you went to go and buy an actual business yourself, however its of very limited use in the short term and medium term. Much of TA is pretty useless too although note that TA is made up of lots of disparate techniques stitched together. The simplest techniques involving identifying and chasing trends (momentum trading) are useful in certain markets like FX (which explains why TA is pretty mainstream in FX) and this has been proven by academic studies. So there is partial truth to various attempts to understand the markets. The problem is financial markets are so complex, with an interplay between many participants and some real underlying situation, that its mindbogglingly difficult to unravel. Perhaps its beyond human intelligence to do so, which may be why quant finance has become so dominant in recent years. I wouldn’t throw out the baby with the bathwater though. Again there is an analogy to Game, both being attempts to strategically obtain the best result in a very complex system. What we stumbled upon with techniques in Game are merely glimmers of understanding of what really lies beneath. Thats why its funny when you come across someone who thinks they ‘get’ everything in the financial markets, or in game.

    As I have also told my friends in game there is another analogy which bears repeating. NO technique will work well constantly because the markets are in a constant state of flux. IOW the GAME ITSELF IS CHANGING. Therefore any fund which says, “we use a value approach” or “we buy in emerging markets for outperformance” etc are fools. Yes, it may be better for a while, then the system itself changes, therefore unless you shift with it you will be caught out. In the same way Game cannot be constant as the environment is shifting. For instance, girls concentration spans are hyper short now therefore using long story telling from old school game is going to lead to a quick “Ive got to go …”.

    Theres one final analogy I can see which is that financial markets give the illusion of fast easy money. Nothing could be further from the truth. Its actually a very difficult way to make money consistently which takes too much of an emotional and physical toll on you. 99.99% of people would be better off starting a little business. In the same way most people shouldn’t do daygame as its too much of a mountain to climb for too little reward. Im not saying they should go MGTOW, but perhaps just develop their inner game then find a nice girlfriend and then a wife instead of trying to live a playboy lifestyle.


  9. I think you’re right zatara regarding game and having realistic expectations.
    I would say there’s three types of guys involved in game.
    Type 1 is average in looks and personality in that he doesn’t stand out. But what he has going for him is an obsessive slightly broken personality that allows him to persevere to a degree that others just don’t have in them. Over time this average type actually makes it but it’s never an easy ride.
    Type 2 is good looking but clueless and misses shit loads of obvious signals girls have been sending out. He changes his fashion a bit, starts approaching and gets results quickly. He thinks he has game but it’s 80% looks and 20% because he now actually speaks to women.
    Type 3 are the tragic figures. They can be either very intelligent or genuinely retarded and the interesting thing is that their game is very similar in style. Go up to women at least two points hotter and think they have a chance but don’t learn from the repeated rejections that turn months in to years. That 52 dates guy would fit into this imo. It sounds cruel but I’ve seen YouTube videos of him and he’s obviously a very successful intelligent guy but just doesn’t get that a guy like him cannot get hot 18-25 year old girls and yet is constantly coming out with long winded theories and examples that won’t lead anywhere. [This was in spam folder. Don’t know why. K.]

    • Well if he’s reading this I can give him a piece of advise straight away which I think would help a lot.

      He’s created a new identity which is not a bad thing. Problem is he’s become a simulacra of Torero. Torero himself is a simulacra of a man he imagines to be ‘cool’ (I won’t go into detail about this imaginary character he’s created as Ive spent far too much time trolling him online on this topic already LoL). Anyway the character our lawyer friend is acting out 1) Is a weird distorted one 2) Doesn’t fit with his age, background or profession 3) Isn’t congruent with his underlying personality. This is all going to send warning lights off in girls heads.

      If I was him I’d ditch this whole Russell Brand meets Tom Cruise from Top gun routine and instead adopt another type of character which is more aligned with his nature. Perhaps something like the image below. [Are you talking about Alex Forrest? I’ve never met him and not followed his stuff beyond a quick look, and the book of course. Regarding Tom, once you understand narcissism, narcissistic supply, and the false idealised self everything fits into place neatly. K.]


  10. Yes I was talking about Alex, he seems like a nice guy, I can see he’s taken on Torero’s mannerisms, dress and style (which themselves are a creation). There seems to be a pattern where Toreros acolytes become a ‘mini me’ version of him. Its very strange indeed. I think you’re spot on with Torero. That would explain why he pushes this weird identity onto his students and followers [highlighted section on control by narcissists behaviour taken from Wiki]. Not sure of the mechanics but have seen lots of examples of the result. The problem is that this identity is going to turn off high value women as they correctly realise its just off.

    True self and false self

    The false self, by contrast, Winnicott saw as a defensive façade[1] – one which in extreme cases could leave its holders lacking spontaneity and feeling dead and empty, behind a mere appearance of being real.[1]

    To maintain their self-esteem, and protect their vulnerable true selves, NARCISSISTS NEED TO CONTROL OTHERS’ BEHAVIOR – PARTICULARLY THAT OF THEIR CHILDREN, SEEN AS EXTENSIONS OF THEMSELVES.[3] [It’s a fascinating subject. Try Richard Grannon’s youtube channel. K.]

  11. Hey Nick!
    What have you done?

    I bought bitcoin at 17000 long ago.. now I must sell it at loss below 9000 level?!!
    Shit! [If you’re not trolling I’d give you this advice: having been burned by one speculative mania, take steps to ensure you don’t get burned by the next one. Read “Manias Panics and Crashes” for the theory. Also introspect on why you were a sucker – what was the mania giving you psychologically that you need? Was it the free lunch? Was it the sense of superiority over the sheeple? Was it escape from a tedious life? You need to figure that out or the next mania will get you too. K.]

    • If placing a bet comes from keeping up with the Joneses…it’s a bad bet.

      Always remember the possibility of…

      bad bet = good outcome
      Good bet = bad outcome

      A realistic look at this is the book Zurich Axioms. Also study exits not entries. Random entries with disciplined exits can make you a (small) winner.

      Also read Trading Risk by Kenneth Grant. Chicago Booth guy who was forced to recognize the game can be beat. Check out his 90/10 rule (not Pareto Principle but similar idea)…the Chicago boys were all random walkers

      Good luck

  12. Technical analysis doesn’t predict only a fool believes that. But neither does DCF or NPV or anything else. Assumptions much?

    Some of the greatest traders (Soros, Renaissance, Paul Tudor Jones, Thorpe) in the world use charts/price action and their performance across time is so many STD deviations away from the average it can’t be explained…there haven’t been that many people alive through the history of earth. Let alone market participants.

    Price action + value + sentiment = place your bet…but you know that

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