For a book enthusiast seeking to delve into the fascinating world of stock market investing, Nicolas Darvas’s “How I Made $2,000,000 In The Stock Market” offers a unique and compelling narrative. This isn’t your typical finance textbook; it’s a personal journey, written by a professional dancer who, despite being a complete non-professional in finance, managed to amass a fortune through his self-developed investment methods.

Published in 1960 by the American Research Council, this book chronicles Darvas’s 18-month period of successfully applying his perfected theory to gain over $2,000,000 in the stock market. What makes his story particularly striking is his unconventional approach: he famously disregarded traditional investment practices, ignoring tips, financial stories, and brokers’ letters – elements that often guide conventional Wall Streeters.

His methods, culminating in what he termed the “Techno-Fundamentalist Theory,” and his sharp market maxims like “I just jog along with the trend trailing my stop-loss insurance behind me,” have earned a place in Wall Street history. Darvas’s transparency in detailing his financial dealings is unprecedented, offering readers a truly exposed view of his journey.

Let’s dive into the extraordinary evolution of Nicolas Darvas, from an uninitiated gambler to a multi-millionaire investor.

The Unlikely Investor: Nicolas Darvas

Nicolas Darvas was far from a typical Wall Street figure. He was a spectacular international dancer, accustomed to the spotlight, having starred in 34 countries with his partner, Julia. This background likely contributed to his openness in revealing his stock transactions. Beyond his dance career, Darvas possessed a sharp intellect, holding a solid background in economics and sociology from the University of Budapest, and prior experience as a sportswriter, journalist, and crossword-puzzle editor. This diverse skill set prepared him, perhaps unexpectedly, to write a book detailing his investment techniques.

The American Research Council, impressed by a Time Magazine article (May 25, 1959) detailing his story, sought him out in Paris to write this book. The book’s significance lies not just in his immense profits, but in the fact that they were achieved by a non-professional “outsider” seeking a “second income,” and were the result of hard-won experience and learning from years of mistakes, rather than lucky tips.

The Gambler: Darvas’s Canadian Period

Darvas’s foray into the stock market began in November 1952 during a dancing engagement in New York. He received an unusual offer in Toronto: instead of money, he and his partner were offered 6,000 shares of BRILUND, a Canadian mining firm, at 50 cents a share, with a six-month guarantee against price drops. Though he couldn’t keep the Toronto date, he bought the stock as a gesture, sending a $3,000 check.

• Beginner’s Luck: Two months later, he idly checked the stock’s price, finding it quoted at $1.90. He sold immediately, making a profit of nearly $8,000. This felt like “magic” and convinced him he had been “missing a good thing all his life,” leading him to decide to go into the stock market.

At this point, Darvas knew “absolutely nothing” about the stock market, not even that one existed in New York. His initial strategy was simple: ask everyone for tips.

• Following Amateur Tips (Failure): Working in nightclubs, he encountered wealthy individuals whom he believed “must know” about good stocks. He “religiously followed their tips,” buying whatever he was told. It took him “a long time to discover that this is one method that never works”. He describes himself as “the perfect pattern of the optimistic, clueless small operator who plunges repeatedly in and out of the market,” buying stocks of companies he couldn’t pronounce or had no idea what they did.
• Canadian Broker Experience: In Toronto, seeking a “hot tip,” he found a broker whose dingy office and reliance on statistics did not inspire confidence. The broker, touting his father’s success with KERR-ADDISON, recommended EASTERN MALARTIC based on production figures and estimates. Darvas bought 1,000 shares at 290 cents, but it quickly dropped to 241 cents, leading him to sell at a loss. He concluded this “painstaking, statistically minded broker did not have the answer”.
• Ignorance of Costs: He learned about broker’s commission and transfer taxes the hard way. He bought 10,000 shares of KAYRAND MINES at 10 cents, sold at 11 cents, thinking he made $100. His broker informed him that commissions for buying and selling, plus transfer taxes, resulted in a loss. He often owned 25-30 Canadian mining stocks at a time, making money on none of them.
• The “Pet Stocks” Pitfall: He developed a liking for certain stocks, treating them like “members of my family,” praising their virtues despite no one else seeing their special qualities. He later realized these “pet stocks” caused his “heaviest losses”.
• Overlooking Losses: He felt he was “doing all right” and appeared to be ahead, but admits he was “buoyed up and excited by small gains, and overlooked my losses.” He ignored holding stocks “well below the price I had paid for it”. This was a period of “wild, foolish gambling with no effort to find the reasons”.
• First Dilemma & Loss: After seven months, a review of his books revealed a loss of almost $3,000. This forced him to question his “moneymaking scheme” and realize he had “no idea what I was doing”. While still technically ahead due to his initial BRILUND profit, he knew his current path was unsustainable.
• Misleading Advisory Services: Deciding he needed “professional help,” he subscribed to Canadian financial advisory services. These services, which he later realized were “strictly for the sucker trade,” used aggressive headlines like “Buy this stock now before it is too late!” and “This stock will give you a profit of 100% or more!”. They often implied insider information and appealed to the “little fellow”.
• The Small Operator’s Pitfall: He would rush to buy recommended stocks, which “invariably went down”. He later understood this phenomenon: when tipsters advise small operators to buy, professionals who bought earlier on inside information are selling. The “small sucker money is coming in” when it’s “far too late”.
• Blind Luck: His $900 profit on CALDER BOUSQUET was “just blind luck”. He bought it because he liked the name, then went on a dancing engagement, unable to monitor its price. Had he been able to, he would have sold too soon. This accidental ignorance saved him from premature selling.
• End of the Canadian Period: By the end of 1953, his initial $11,000 had dwindled to $5,800. He realized that businessmen’s tips and advisory services were unreliable. He began reading financial columns in major New York papers, becoming fascinated by the New York market. He sold all his Canadian stocks, except for one he stubbornly held onto due to a “fantastic developments” rumor (OLD SMOKY GAS & OILS), which also resulted in a loss.

Entering Wall Street: The Fundamentalist Period

With a new resolve, Darvas approached Wall Street, viewing his Canadian experience as “pure crazy gambling”. He raised his capital to $10,000 by adding savings from his show business activities.

• Initial Wall Street Experience: His new broker, Lou Keller, suggested “safe stocks” based on “fundamental reasons” like dividend increases, stock-splits, and improved earnings. Darvas, feeling this was “highest professional advice,” bought into Columbia Pictures, North American Aviation, and Kimberly-Clark, netting over $1,300 in a few weeks. He later realized this success was partly due to being in the “biggest bull market the world had ever seen”.
• Old Habits, New Terms: Despite feeling he was losing his “Canadian amateur status,” he was still trading constantly, sometimes making 20 calls a day to his broker, impulsively buying new stocks. His net profit on some intense transactions was a mere $1.89, while his broker earned $236.65 in commissions. He started to use more “pompous words” like “information” instead of “tips”.
• Self-Education: To understand his broker, Darvas began reading books about the stock market, learning terms like “earnings,” “dividends,” and “capitalization”. He studied works like “ABC of Investing” and “The Stock Market”.
• Professional Services – Still Confusing: He subscribed to major stock market services like Moody’s, Fitch, and Standard & Poor’s, but found their “magnificent information” incomprehensible, filled with jargon that didn’t tell him “which stock was going up like BRILUND”. He also found trial subscriptions often contradictory, with non-committal recommendations.
• More Losses: He bought EMERSON RADIO based on a glossy report that analytically proved it should be worth 35, but it drifted downwards, costing him money.
• Refutation of Market Sayings:
  • “You cannot go broke taking a profit”: He experienced this adage’s falsity firsthand. He made $1,074.45 on KAISER ALUMINUM, then jumped into BOEING and MAGMA COPPER, incurring losses, then jumped back into KAISER, losing more. His net loss for the circular transaction was $461.21. Had he simply held KAISER, he would have profited $1,748.75. Similar experiences with RAYONIER and MANATI SUGAR confirmed this.
  • “Buy Cheap, Sell Dear”: This led him to the over-the-counter market of unlisted securities, believing he could find bargains. He bought many obscure stocks, only to discover there was no “rigid price discipline” or “specialists” to assure an orderly market, making them very difficult to sell, often at a significant discount from the “Ask” price. He quickly realized it was a “specialized field” for experts and returned his attention to listed securities.
• The Danger of Rumors: He believed Wall Street rumors were “solid information”. He bought BALDWIN-LIMA-HAMILTON at its peak on a rumor of an “atomic train” order, losing over $1,100. Another broker’s “first-hand information” about STERLING PRECISION rocketing to 40 led to a plunge of $1,000 on 1,000 shares, as the stock slid downwards.
• Insider Trading Observations: He tried following insider transactions reported to the SEC, but found he was “always too late” and that “insiders were human too,” often buying too late or selling too soon. They knew about their company, but not the market’s attitude.

Emerging Conclusions and Rules (First Set): Through these experiences, Darvas began to formulate his own rules:

1. I should not follow advisory services. They are not infallible.
2. I should be cautious with brokers’ advice. They can be wrong.
3. I should ignore Wall Street sayings, no matter how revered.
4. I should not trade “over the counter” – only in listed stocks where a buyer is always available.
5. I should not listen to rumors, no matter how well-founded.
6. The fundamental approach worked better for me than gambling. I should study it.

• The Accidental Discovery (Virginian Railway): Reviewing his statements, he found a stock, VIRGINIAN RAILWAY, which he had bought 11 months earlier and forgotten about. It had “never given me a moment’s anxiety” and had “slowly rising.” He sold it for a $1,303.68 profit with “no effort on my part”. This led to his seventh rule:
  • Rule 7: I should rather hold on to one rising stock for a longer period than juggle with a dozen stocks for a short period at a time.
• The Search for the Ideal Stock (Refining Fundamentals): Convinced of the “rightness of my fundamental approach,” he tried to find “the ideal stock” by studying company reports, balance sheets, income accounts, assets, liabilities, profit margins, and price-earnings ratios. He used lists like “Stocks with top quality rating” and “Stocks with strong cash position”. However, he repeatedly faced the problem that when things looked “perfect on paper,” the market “never acted accordingly”. For example, his fundamental analysis pointed to AMERICAN VISCOSE and STEVENS in textiles, but TEXTRON advanced while his picks did not.
• Reliance on Ratings: He turned to a “serious, very reliable monthly service” that rated stocks (AAA, AA, A for high grade; BBB, BB, B for investment merit; CCC, CC, C for lesser grade; DDD, DD, D for lowest grade). He carefully studied these, believing he “had only to compare” ratings to succeed.
• Industry Group Analysis: He applied fundamental analysis to find the “strongest industry group” and the “strongest company within that industry group,” believing such an “ideal stock must rise”. He compiled earnings of whole industry groups like oils, motors, aircraft, and steel. He eventually settled on the steel industry as his vehicle to riches.
• The JONES & LAUGHLIN Disaster (First Crisis): He meticulously compared steel stocks, focusing on “B” rated, high-dividend payers. His analysis pointed “clearly” to JONES & LAUGHLIN, which seemed “perfect” based on its strong industry group, B rating, nearly 6% dividend, and superior price-earnings ratio. Overconfident and certain of his “gilt-edge scientific certainty,” he raised money by mortgaging property, taking a loan on an insurance policy, and getting an advance on a contract to buy a large amount. On September 23, 1955, he bought 1,000 shares of JONES & LAUGHLIN at 52¼ on 70% margin, investing over $36,856 in cash.
  • The Fall: Three days later, the stock began to drop. Darvas was “paralyzed,” refusing to believe it, calling it a “temporary setback”. His pride and conviction that his “exhaustive studies” were infallible prevented him from selling. He “held on and I held on”.
  • Panic and Loss: As it continued to fall, he became “afraid to look at the quotations”. On October 10th, when it hit 44, “blind panic set in.” He sold, incurring a net loss of $9,069.18.
  • Crushed and Desperate: This experience “crushed, finished, destroyed” his “smug ideas”. He realized his various methods—gambling, tips, information, research, investigation—had all failed. The “horror of bankruptcy stared me in the face”.
• The Accidental Salvation (TEXAS GULF PRODUCING): In despair, he noticed a stock he’d never heard of, TEXAS GULF PRODUCING, which was “rising steadily, day after day”. Knowing “nothing about its fundamentals and had heard no rumors,” he bought 1,000 shares. For the first time, he “refused to take a quick profit” due to his $9,000 loss. He watched it intensely for five weeks, selling at 43¼, recovering over half his loss. This led to a crucial question: What was the value of fundamental analysis if the stock that saved him was chosen only because “it seemed to be rising”? This marked the “glimmering of my theory”.

The Technician: Developing the Box Theory

The JONES & LAUGHLIN disaster and the accidental success of TEXAS GULF PRODUCING forced Darvas to reassess. He realized he couldn’t rely on luck and needed “knowledge” to operate in the market.

• Shift to Technical Approach: He focused on repeating the successful approach used with TEXAS GULF PRODUCING, which was “purely on the basis of its action in the market”.
• M & M WOOD WORKING Success: He noticed M & M WOOD WORKING due to its action, rising from 15 to 23⅝ with increased volume. He bought 500 shares at 26⅝, held as it rose, and sold at 33, making a profit of $2,866.62. He learned later that this rise was due to a secret merger. This convinced him that a “purely technical approach… was sound,” meaning studying price action and volume could yield results, discarding other factors.
• The “Unusual Behavior” Principle: He decided that if a “usually inactive stock suddenly became active” and “advanced in price,” he would buy it, assuming “some good information” was behind the movement. He would become their “silent partner”.
• PITTSBURGH METALLURGICAL Failure (Wrong Timing): He bought PITTSBURGH METALLURGICAL at 67, expecting it to continue a rapid rise due to increased activity. However, it weakened, and he stubbornly held on, believing it was a “small reaction.” It dropped to 57¾, resulting in a loss of $2,023.32. He realized he had bought the “right stock at the wrong time”.
• Discovery of the “Box Theory”: To overcome timing issues, he studied “individual stock movements,” looking for patterns. He observed that stocks had “a defined upward or downward trend” and moved in “a series of frames, or what I began to call ‘boxes’.”.
  • Box Theory Application:
    • Stocks oscillate “fairly consistently between a low and a high point” within a box.
    • He watched stocks in their “highest box”.
    • If a stock fell below the lower frame of its box, he eliminated it, as he only wanted it to move into a higher box.
    • He observed for “an upward thrust toward the next box”.
    • A “reaction” within the box (like 55 dropping to 50 in a 50/55 box) was considered normal, like a dancer crouching before a spring. Such reactions “shakes out the weak and frightened stockholders”.
• The “On-Stop” Buy Order: His experience with LOUISIANA LAND & EXPLORATION, where he missed buying at 61 because he couldn’t be reached, led him to use automatic “on-stop” buy orders. This meant the stock would be bought automatically once it reached a named figure.
• Initial Box Theory Successes: He successfully used the theory with ALLEGHENY LUDLUM STEEL, DRESSER INDUSTRIES, and COOPER-BESSEMER, making a profit of $2,442.36.
• The NORTH AMERICAN AVIATION Slap (Turning Point): He bought NORTH AMERICAN AVIATION at 94⅜, confident it would enter a new box over 100. It didn’t; it immediately fell back. His pride and ego prevented him from selling immediately, leading to the loss of all profits from his previous three operations. This was a “rude awakening”.

Crucial Turning Point and Revised Rules/Realizations: This experience led to fundamental changes in his mindset and system:

1. There is no sure thing in the market. He was “bound to be wrong half of the time”.
2. He “must accept this fact and readjust” himself; his pride and ego “would have to be subdued”.
3. He “must become an impartial diagnostician,” not identifying with any theory or stock.
4. He “cannot merely take chances” but “have to reduce my risks as far as humanly possible”.

• The “Quick-Loss Weapon” (Automatic Stop-Loss Orders): He decided to “sell immediately at a small loss”. If he bought a stock at 25, he would simultaneously place an order to sell if it dropped below 24. This meant he would “never sleep with a loss”. He acknowledged being “stopped out” for small losses but realized this was crucial for “stopping the big losses”.
• The Commission Problem: He realized being right half the time wasn’t enough, as commissions could “completely erode” capital. For a $10,000 investment in a $20 stock, 40 transactions would cost $10,000 in commissions.
  • Solution: Profits Must Be Bigger Than Losses. His biggest challenge was not selling a rising stock too quickly due to fear. He decided to hold onto a rising stock while “raising my stop-loss order parallel with its rise,” keeping it far enough to avoid “meaningless swings” but close enough to sell automatically if the stock genuinely turned around.
• When to Take Profits: He accepted he couldn’t sell at the top. The solution: sell “when the boxes started to go into reverse! When the pyramids started to tumble downwards”. His trailing stop-loss would handle this automatically.

Redefined Objectives and Weapons:

• Objectives:
  1. Right stocks
  2. Right timing
  3. Small losses
  4. Big profits
• Weapons:
  1. Price and volume
  2. Box theory
  3. Automatic buy-order
  4. Stop-loss sell-order
• Basic Strategy: “I would just jog along with an upward trend, trailing my stop-loss insurance behind me. As the trend continued, I would buy more. When the trend reversed? I would run like a thief.”
• Emotional Control: He knew he had to adopt a “cold, unemotional attitude,” not falling in love with rising stocks or getting angry at falling ones. He recognized “there are no such animals as good or bad stocks. There are only rising and falling stocks—and I should hold the rising ones and sell those that fall”. This required “complete control” over fear, hope, and greed.

Cables Round the World: The Remote Investor

A two-year world dancing tour posed a significant challenge. Darvas and his broker decided to communicate exclusively via cables.

• Information Flow: He received Barron’s weekly (airmailed) for identifying potential movers and daily telegrams with closing, high, and low prices of his owned stocks. He did not ask for volume quotes to save cable space.
• Cable Challenges:
  • His special code (initial letters + numbers) caused constant suspicion and confusion among post office employees, especially in Japan, who thought he was a “secret agent”.
  • He faced difficulties in remote places like Vientiane (no phone, limited post office hours) and Kathmandu (no telegraph service outside Indian Embassy, handwritten illegible messages).
  • To avoid missing cables while traveling, messages were duplicated or triplicated to various airports and hotels.
• Remote Trading Process:
  1. Identified potential stocks in Barron’s (4 days behind Wall Street).
  2. Cabled broker for “this week’s range and close” on a stock of interest.
  3. If still in the desired “box,” he’d watch it daily.
  4. If satisfied with the upward thrust, he’d send a “good-till-cancelled” on-stop buy order, coupled with an automatic stop-loss order.
  5. If the stock had moved out of the desirable box, he’d forget it.
• The Unforeseen Advantage of Distance: He initially missed the false feeling of security from telephone communication, but gradually saw the advantages of cable-only trading.
  • Detachment: “No phone calls, no confusion, no contradictory rumors”.
  • Focus: He handled only 5-8 stocks, separating them from the “confusing, jungle-like movement”.
  • Observation, Not Noise: “I could not hear what people said, but I could see what they did” – like a poker game where he saw the cards but not the betting. This helped him become an “insider without actually being one”.
• Paper Trading vs. Real Money: He found paper trading unrealistic because “as soon as I put dollars into a stock my emotions came floating quickly up to the surface”.
• Discovery of General Market Influence: He made a “momentous discovery”: inexplicable moves in his stocks often coincided with “some violent move in the general market”. He realized he was “disregarding the possible influence of the general market”.
  • Solution: Dow-Jones Industrial Average: He asked his broker to add the Dow-Jones Industrial Average closing price to his cables.
  • Refined Use of Dow-Jones: He initially mistakenly thought his stocks would mechanically follow the Dow-Jones, but learned it was a mistake to fit the market into a “rigid pattern”. He realized judging the relationship was an “art,” and he would use the Dow-Jones only to determine if he was in a “strong or a weak market,” as general market cycles “influence almost every stock”.
• The “X-Ray” View: His telegrams became like “X-rays”. He learned to absorb the data at a glance, comparing his stocks to each other and the Dow-Jones, and evaluating whether to buy, sell, or hold, without deeper analysis.
• Training Emotions & Learning from Errors: He wrote down reasons for buying/selling and for every loss, learning from his mistakes. He observed that “stocks have characters just like people,” some predictable, others not. He learned to stop trading stocks that “slapped me twice”. This “cause-of-error tables” became his most important qualification.
• Diagnostician, Not Prophet: He accepted he could not be a prophet; he could only assess a stock’s health “now, today, at this hour”. He learned that the “value of a stock is its quoted price,” dependent on supply and demand.
• Ignoring Tax Implications: He decided not to be influenced by tax problems (e.g., holding for long-term capital gain), prioritizing “doing the right thing first—follow what a stock’s behavior commands and care about taxes later”.
• Successful Operations & The Summer 1957 Crisis: He had success with COOPER-BESSEMER, DRESSER INDUSTRIES, and REYNOLDS METALS. However, in Summer 1957, a “staggering series of events” occurred in Singapore. His automatic stop-losses sold him out of BALTIMORE & OHIO, DOBECKMUN, DAYSTROM, FOSTER WHEELER, and AEROQUIP, one by one, as they sagged through the bottom of their boxes.
  • The Power of Stop-Losses: He found himself “without a single stock”. While prices continued to drop in what was later declared a bear market (though opinions differ on whether it was merely an “intermediate reaction”), Darvas made a “joyful discovery”: his system of “ducking out quickly with my stop-losses made such an assessment unnecessary”. His method “automatically released me well before the bad times came”. He realized he had “absolutely no hint whatsoever that the market would slide” because he listened to no predictions, studied no fundamentals, and heard no rumors, but “simply gotten out on the basis of the behavior of my stocks”.
  • Avoiding Catastrophic Losses: He compared his situation to those who held stocks like NEW YORK CENTRAL in 1929 and lost 50% or more. He called “conservative investors” who “put them away” despite falling prices “pure gamblers”. His stop-losses prevented him from losing about 50%.
• Net Result of Early Years: In September 1957, after 6 years of trading, he had made up for his JONES & LAUGHLIN loss, and his original capital of $37,000 was “almost intact.” He had gained “a lot of experience, a great amount of knowledge, much more confidence—and a net loss of $889”.

The Techno-Fundamentalist: During the Baby-Bear Market

After being entirely out of the market, Darvas adopted a “closer clinical look”. He viewed the bull market as a “sunny summer camp” and the bear market as a “hospital”. He accepted the market for “what it was—not what I wanted it to be” and “firmly refused to trade” during the steady downtrend. He jokingly called it a “market for the birds”.

• Seeking Resistance: During this period, he “limbered up for the race,” watching Barron’s to “detect those stocks that resisted the decline”. He reasoned these would advance fastest when the trend changed.
• The Techno-Fundamentalist Breakthrough: He observed that many stocks resisting the decline were companies with “earning trends pointed sharply upward.” This was a pivotal insight: “capital was flowing into these stocks, even in a bad market”. He concluded that “stocks are the slaves of earning power”.
  • The Theory: He decided to marry his technical approach to the fundamental one: “I would select stocks on their technical action in the market, but I would only buy them when I could give improving earning power as my fundamental reason for doing so”. This became his techno-fundamentalist theory.
• Focus on “Stocks of the Future”: He adopted a “20-year view,” not to hold for 20 years, but to look for stocks tied to “the future” with “revolutionary new products” expected to “sharply improve the company’s earnings”. Examples included electronics, missiles, rocket fuels.
  • “Fashions” in Stocks: He understood that there were “definite fashions” in stocks, similar to women’s clothes. Successful investors “get in and stay in” while the fashion persists, then move out when it fades, seeking new “fashionable stocks”. He aimed to find stocks “that would be hoisted up because they stirred people’s imagination for the future”.
• Ignoring Company Reports for Future Outlook: He consciously went against conservative advice to study company reports and balance sheets, recognizing they “can tell you is the past and the present. They cannot tell the future,” which was his focus. He sought “capital gain,” distinguishing his approach from a “widow looking for dividend income”.
• “Buy High and Sell Higher”: He looked for stocks making new highs, focusing his attention on them when they were “preparing to rocket up.” These would be “more expensive than ever before” but “could become dearer”.
• Higher-Priced Stocks for Lower Commissions: He discovered that investing $10,000 in a $100 stock was significantly cheaper in terms of commissions ($90 roundtrip) than in a $10 stock ($300 roundtrip). This reduced the cost of his inevitable mistakes when stop-losses were hit.
• Waiting for the Market Turn: He knew the market couldn’t sink forever and would eventually turn. His goal was to “watch for the first signs, be sure they were real, and buy in before everyone else noticed”. He likened this to Rothschild’s agent at Waterloo, getting news of victory before others.
• Synthesized Learning: He felt he had pieced together his learnings:
  • Canadian period: “not to gamble”.
  • Fundamentalist period: “industry groups and their earning trends”.
  • Technical period: “interpret price-action and the technical position of stocks”.
• Identifying New Leaders: As the market began to show “primrose buds,” stocks “peeping up” while the averages declined, he sensed the end of the baby-bear market. He suspected that the “leaders in the previous market would probably not lead again,” and he needed to find new ones. He identified potential future leaders: UNIVERSAL PRODUCTS, THIOKOL CHEMICAL, TEXAS INSTRUMENTS, ZENITH RADIO, FAIRCHILD CAMERA. These “were only sleeping the promising sleep of the unborn”.

The Theory Starts to Work: Major Successes

While most Wall Street stocks drifted or dropped, Darvas continued his dancing tour.

• LORILLARD (The Beacon):
  • In November 1957, in Saigon, he noticed LORILLARD emerging “from the swamp of sinking stocks like a beacon”. Its price rose from 17 to a 24/27 box with sharply increased volume, indicating “tremendous interest”.
  • Fundamentals: He found out about the wide acceptance of their “Kent” and “Old Gold” filter-tip cigarettes, which were about to sweep America.
  • First Buy: He decided to buy if it went above 27. In mid-November, as it pushed toward a 27/32 box, showing “isolated strength,” he bought 200 LORILLARD at 27½ with a 26 stop-loss.
  • Initial Stop-Out & Re-Entry: A few days later, it dropped to 26, hitting his stop-loss. But it immediately rose, convincing him his assessment was correct, so he bought back at 28¾, again with a 26 stop-loss.
  • Pyramiding Boxes: LORILLARD behaved “perfectly,” rising to a new 31/35 box in December 1957, indicating accumulation. He bought another 400 shares at 35 and 36½.
  • Resilience & Further Purchase: In February 1958, a sudden drop to 36¾ due to a rumor about filter-tips and cancer scared him, but his stop-loss at 36 was not touched. This confirmed the stock’s power, and he bought an additional 400 shares at 38⅝.
  • Ignoring Advisory Services: He noted that a well-known advisory service was urging subscribers to sell LORILLARD short. He ignored them, having become “disillusioned”.
  • Ancedote (Shipping Company President): He advised a shipping company president, who held $500,000 in LORILLARD and $2,500,000 in Standard Oil (New Jersey), to sell all Standard Oil and switch to LORILLARD. A year later, LORILLARD was above 80, and the president regretted not following his advice.
  • Continued Rise & Profit Taking: In March 1958, LORILLARD entered a 50/54 box. He raised his stop-loss to 49, resisting the temptation to take quick profits, adhering to his principle: “There is no reason to sell a rising stock”. He eventually sold his 1,000 shares in May at an average of 57⅜ to free up capital for E. L. BRUCE, making a substantial profit of $21,052.95.
• DINERS’ CLUB (Technical Confirmation):
  • Interested in January 1958 after a 2-for-1 split and unusually high weekly volume.
  • Fundamentals: Confirmed it was a “near-monopoly in an expanding field” with an “upward trend in earning power”.
  • Purchases: Bought 500 shares at 24½ (stop-loss 21⅝), then another 500 at 26⅛. He took advantage of new 50% margin requirements.
  • Box Pattern & Trailing Stop-Loss: It evolved perfectly with pyramiding boxes (28/30, 32/36) and rising volume. He raised his stop-loss to 27, then 31.
  • Sudden Weakness & Sale: In the fourth week of March, it established in a 36½/40 box. However, it “lost its will to rise”. To avoid collapse, he raised his stop-loss to a narrow 36⅜. In the fourth week of April, he was stopped out, making an overall profit of $10,328.05.
  • Retrospective Confirmation: Six weeks later, American Express announced a rival credit card, which was the reason for the stock’s hesitation. Darvas, “without knowing about it,” had been warned by his system’s “technical side” to get out. This “fully confirmed for him the correctness of the technical side of his approach”.
• E. L. BRUCE (The “Big Killing”):
  • He noticed “great interest” in E. L. BRUCE, a small Memphis firm, despite its product (hardwood flooring) not fitting his fundamental requirements. However, its “technical pattern was so compelling that I could not take my eyes off it”.
  • Phenomenal Action: Its volume surged from below 5,000 shares/week to over 76,500 shares/week, with the price jumping 5-8 points weekly, going from 18 in February to 50 by early May. A reaction to 43¾ was seen as a “temporary halt, a refueling”.
  • Commitment: Despite lacking a fundamental reason, he felt the “rhythm of the advance was there” and decided to buy “a lot of it” if it went over 50. He sold all his LORILLARD to free up capital for BRUCE.
  • Purchases: In the third week of May 1958, he bought 2,500 shares at an average price of 52, with stop-losses between 47 and 48.
  • Spectacular Rise & Short Squeeze: BRUCE “began to climb as if drawn upwards by a magnet”. It soared over 60, then to 77 by June 13th. He resisted calling New York to find out what was happening, sticking to his rule of ignoring rumors.
  • Trading Suspension: A call from his broker informed him that trading in BRUCE was suspended on the American Stock Exchange. He learned that this was due to a short squeeze: traders had shorted the stock based on fundamental “book value” (around $30), but a manufacturer, Edward Gilbert, was trying to gain control, buying up shares and rocketing the price. The short-sellers were “caught with their pants down” and desperately buying over-the-counter.
  • Refusal to Sell at 100: He was offered $100 per share over-the-counter. Faced with a “big, tempting profit,” he made “one of the most momentous decisions of my life”: “No, I will not sell at 100. I have no reason to sell an advancing stock. I will hold onto it.”.
  • Ultimate Profit: He gradually sold out the stock over-the-counter in blocks at an average price of 171, making a profit of $295,305.45. He tried to explain to friends it wasn’t a tip, but “Nobody believed me”.

My First Half-Million: Expanding Horizons

The overwhelming success with E. L. BRUCE made Darvas more cautious, not less. He withdrew half of his profits from the market to protect them.

• Minor Setbacks & Sentimental Attachment: He had some small losses with MOLYBDENUM and HAVEG INDUSTRIES. He also revisited LORILLARD, which had become a “weary, slow-moving elderly gentleman”. Despite it no longer fitting his criteria, he had a “sentimental attachment,” leading to three losing buys and sells before he finally broke free.
• Overall Profit to Date: His total profit stood at $318,927.44.
• UNIVERSAL PRODUCTS (later Universal Controls):
  • He noticed UNIVERSAL PRODUCTS in July 1958 due to a “sudden enormous spurt in volume” and price rise into a 32-36 range. As an electronics company, it fit his techno-fundamentalist theory.
  • Pilot Buy & Further Purchases: He made a pilot buy of 300 shares at 35¼ (stop-loss 32½). As it firmed up, he bought 1,200 more at 36½, and then 1,500 at 40.
  • Stock Split: The company changed its name to UNIVERSAL CONTROLS and split 2-for-1, giving him 6,000 shares.
  • Missed Opportunity for Secretary: He recommended it to his secretary, who didn’t buy because his “old-fashioned, pure fundamentalist” father wanted to examine the company’s books. While the father deliberated, the stock rose to 50.
• THIOKOL CHEMICAL (Leveraging Rights):
  • He noticed THIOKOL CHEMICAL in February 1958 after a 2-for-1 split and heavy trading, followed by a quiet period. He sensed a “calm that precedes the storm”.
  • Pilot Buy & Accumulation: After it started “flexing its muscles for an upward jump” over 45, he made a pilot buy of 200 shares at 47¼. He then bought 1,300 more at 49⅞.
  • Stock Rights Opportunity: THIOKOL issued stock rights, allowing shareholders to buy new shares at a special price ($42 when quoted over $50). Crucially, a “special subscription account” allowed him to borrow up to 75% of the current market value, with no commission.
  • Leveraged Purchases: He “jumped on this eagerly”. With $62,000 in free cash (from his $355,000 total capital minus $160,000 withdrawn and $115,300 in Universal Products), he bought 36,000 rights for $49,410. These allowed him to buy 3,000 THIOKOL shares for $126,000, but he only paid $6,000 cash, borrowing the rest.
  • He then sold his original 1,500 THIOKOL shares at 53½ to generate $57,000, which he used to buy another 36,000 rights, converting them into a second block of 3,000 THIOKOL shares. His total cost for 6,000 shares was $350,820.
  • Approaching Half-Million Profit: In December, THIOKOL shifted to the New York Stock Exchange, jumping 8 points and approaching 100. His broker wired him: “YOUR THIOKOL PROFITS NOW $250,000”. This, combined with his BRUCE profits, meant he had over half-a-million dollars in profit.
  • The Ultimate Test (Paris): He faced an “terrible dilemma”: “Sell, Sell,” but recalled his “Remember BRUCE!” card. He decided not to sell, a “difficult” decision but ultimately the “best example of my new market technique”. THIOKOL continued to rise.
  • Return to New York: In January 1959, he returned to New York holding 6,000 THIOKOL (at 100) and 6,000 UNIVERSAL CONTROLS (at 45), with over half a million dollars in profit.

My Second Crisis: The Perils of Over-Confidence

Despite his success, Darvas admitted he was “preparing to make a complete fool of myself”. His “pocket had strengthened, my head had weakened”. He became “over-confident, and that is the most dangerous state of mind”.

• Losing Detachment: He decided to establish “closer contact with the market” and chose his broker’s uptown office as his “scene of future triumphs”. The “taut, electric atmosphere” of the boardroom, filled with nervous people and constant noise, gradually eroded his detachment.
• Abandoning His System: He “threw overboard everything I had learned over the past six years”. He talked to brokers, listened to rumors, and was “never off the ticker”. He lost his “sixth sense” and his “independence,” adopting the “attitude of the others,” following the crowd, letting “emotion took over completely”.
• The Vicious Cycle of Losses: He bought at the top, became frightened, sold at the bottom, then became greedy and bought at the top again. He lost $100,000 in a few weeks. He blamed “They” instead of his own “stupidity”. He realized it was his “own unreasoning instincts and uncontrolled emotions” that beat him, not the market.
  • His detailed losses during this period are a “lunatic’s chronicle”.
• The Revelation: “My Ears Were My Enemy”: He couldn’t understand why he had success abroad but lost his touch near Wall Street. He realized that when abroad, he visited no boardrooms, talked to no one, received no calls, watched no ticker. His “ears were my enemy”.
  • Remote trading allowed him to assess the market “calmly, neutrally, without interruption or rumor, completely without emotion and ego”. In New York, “interruptions, rumors, panics, contradictory information” caused his emotions to become involved.
• The Escape and New Permanent Rules: To save himself from “complete ruin,” he got rid of every stock except for UNIVERSAL CONTROLS and THIOKOL (which he fortunately left alone because he was too busy losing money on other stocks). He flew to Paris and made a crucial decision: his brokers “must never telephone me or give me any information of any sort on any pretext whatsoever.” The only communication would be his “usual daily telegram”.
  • New York Rules: Even back in New York, his instructions would be “unyielding”: Wall Street must be “thousands of miles away from me”. Brokers would send telegrams as if he were abroad, and “must never quote any stock to me, except the ones I asked for.” He would pick new stocks himself from his weekly financial paper.

Two Million Dollars: The Final Triumph

Returning to New York in February 1959, Darvas had “completely recovered” and was ready to invest again, now rigidly adhering to his system.

• Erecting an “Iron Fence”:
  • He spread his deals among six brokers to prevent his operations from being followed and to guard against interference.
  • Brokers were instructed to send telegrams after Wall Street closing time (6 P.M.), ensuring he received news when the market was closed and he was undisturbed.
  • He would buy an afternoon paper, tear out the stock quotations, and discard the rest of the financial section to avoid “financial stories or commentaries” that “might lead me astray”.
  • He worked every evening, studying his telegrams and newspaper page “while Wall Street sleeps”.
• Stocks Continuing to Rise: UNIVERSAL CONTROLS continued to advance to around 60 (over 40% rise), and THIOKOL pushed over 110. He had “no reason whatever to touch them”.
• Successful Operations: Armed with experience and his “new strong fence,” he had many successful operations, including:
  • GENERAL TIRE & RUBBER: $12,705.01 profit
  • CENCO INSTRUMENTS: $3,472.63 profit
  • AMERICAN PHOTOCOPY: $3,590.17 profit
  • UNION OIL OF CALIF: $3,249.00 profit
  • POLAROID: $2,543.58 profit
  • BRUNSWICK-BALKE-COLLENDER: $2,466.43 profit
  • BELL & HOWELL: $2,695.3 profit
• Confirming His Method (Profits vs. Losses): Even with losses on stocks like CENCO INSTRUMENTS, REICHHOLD CHEMICALS, FANSTEEL, and PHILADELPHIA & READING, he consistently took “larger profits than losses in proportion to the amounts invested”. All these operations were done purely by telegram, confirming the efficacy of his remote, detached approach.
• Selling UNIVERSAL CONTROLS: Signs of trouble appeared in UNIVERSAL CONTROLS; its “activity and price advance became wild—too wild”. It rocketed from 66 to 102 but then “switched its momentum” and fell. He brought his stop-loss within two points of the closing price and was sold out at 86¾-89⅞, more than 12 points from the high. He was “well content” with a profit of $409,356.48.
• Selling THIOKOL CHEMICAL: THIOKOL, a long-standing partner, had a severe reaction after a 3-for-1 split but his wide stop-loss (due to special subscription account advantages) saved him. A “hectic public response” to the newly split stock pushed it to 72, with incredible trading volume.
  • NYSE Action: The NYSE governors “suspended all stop orders” for THIOKOL, meaning Darvas’s “most powerful tool” was taken away. He “could not work without it” and sold his 18,000 split shares at an average of 68, resulting in a profit of $862,031.52. The decision in Paris to hold Thiokol had “paid off”.
• Reinvesting Over $1 Million: With over a million dollars to invest, he faced the problem that his own buying might “unduly influence the market,” and stop-losses would be impractical for such large quantities. He divided his funds into two parts.
  • Selection Process: He narrowed his choice to four techno-fundamentalist suitable stocks (ZENITH RADIO, LITTON INDUSTRIES, FAIRCHILD CAMERA, BECKMAN INSTRUMENTS). He made pilot buys in all four with an arbitrary 10% stop-loss to eliminate the weakest.
  • Final Selections: He was stopped out of BECKMAN INSTRUMENTS and sold LITTON INDUSTRIES, leaving ZENITH RADIO and FAIRCHILD CAMERA as the two stronger choices.
  • Massive Purchases: He switched over $1,000,000 into these two, making significant purchases.
• Climbing Higher: His holdings, including TEXAS INSTRUMENTS (bought earlier with Universal Controls capital), ZENITH RADIO, and FAIRCHILD CAMERA, continued to climb steadily. Telegrams showed that his holdings had appreciated $100,000 in a single day!.
• Achieving His Goal: He found himself “on the sidelines just keeping vigil while my stocks continued to climb steadily like well-made missiles”. When an offer came to perform in Monte Carlo, he reviewed his accounts, finding that he could sell his stocks for over $2,250,000.
• Final Decision (No Reason to Sell a Rising Stock): He felt “happy, but not excited”. His answer to the dilemma of whether to sell was simple and consistent: “I did not have any reason to sell a rising stock.” He would “just continue to jog along with the trend, trailing my stop-loss behind me”. He set new stop-losses to protect his two million dollars.
• Working While Wall Street Sleeps: His journey culminated in the satisfaction of “working while Wall Street slept,” reflecting his achieved detachment and mastery.

The Time Magazine Interview: Public Recognition

In May 1959, Darvas’s stock market success had “leaked out” and reached Time Magazine.

• Skepticism: Time’s Business Section called, and Darvas openly shared all facts, accounts, statements, and cables. However, the magazine’s “business experts on the staff were highly skeptical,” saying the story “could not be true”.
• Intense Scrutiny: Despite repeated explanations and checks, Time’s Managing Editor demanded that three staff members collectively vouch for the facts, and even insisted on seeing Darvas’s dancing act.
• Conviction: The Wall Street expert from Time, initially incredulous, rigorously cross-examined Darvas for hours, refusing drinks to stay sharp. He finally became convinced, toasting Darvas’s success.
• Advice & Irony: Darvas even gave the expert advice: buy a certain stock at 39¼ with a 38¾ stop-loss. The stock never reached the buy price and fell to 22, proving that even experts can be wrong.
• Public Acceptance and Personal Cost: The article appeared, leading to Darvas’s acceptance as a “highly successful, if unorthodox, stock-market investor,” and the publication of his book. During the intense cross-examination, he had also torn a right arm muscle during his act, with doctors doubting his ability to perform again. He did, however, recover, concluding that “medical experts can sometimes be as wrong as the experts on Wall Street”.

Key Takeaways from Darvas’s Journey for Investors

Nicolas Darvas’s story is a profound lesson in self-discovery, discipline, and unconventional thinking in the stock market.

• Avoid Tips and Rumors: Darvas learned the hard way that tips from amateurs, brokers, or even seemingly “inside” information are unreliable and dangerous. Your own research and observation are paramount.
• The Peril of Over-Confidence: Success can breed over-confidence, which Darvas identifies as “the most dangerous state of mind” in the market. Emotional control is vital.
• Embrace Small Losses: His “quick-loss weapon” (stop-loss orders) was revolutionary for him. Accepting small, automatic losses prevents catastrophic ones and preserves capital and confidence.
• Let Profits Run (with a Trailing Stop-Loss): Don’t sell a rising stock too quickly out of fear. His strategy of “jogging along with the trend, trailing my stop-loss insurance behind me,” ensured he captured significant gains while being protected from major reversals.
• Detachment is Key: His remote trading via cables, free from the noise, rumors, and emotional pull of the trading floor, was crucial to his success. Emotional detachment allows for objective decision-making based purely on price action.
• Focus on Price and Volume (Technical Analysis): Initially, he found fundamental analysis (balance sheets, company reports) failed to predict future price movements. He learned to trust the “action in the market”—price and volume—as these reflect collective knowledge and future expectations.
• The “Box Theory”: This visual method of identifying a stock’s trading range and acting when it breaks into a new, higher “box” was central to his timing.
• Marrying Technicals and Fundamentals (Techno-Fundamentalism): His most evolved theory combined the best of both worlds. He selected stocks based on strong technical action (price and volume behavior) but only if they also had a fundamental story of “improving earning power or anticipation of it,” especially in “future-oriented” industries.
• Watch the General Market (but Don’t Follow it Blindly): While individual stocks don’t mechanically follow averages like the Dow-Jones, understanding the overall market cycle (bull or bear) provides context for stock behavior.
• Learning from Mistakes: Writing down the causes of his errors was a powerful tool for self-correction and developing his “feeling” for stocks’ “characters”.
• Discipline and Consistency: Darvas’s journey underscores that lasting success comes not from luck or infallible predictions, but from rigid adherence to a well-tested system and unwavering self-discipline to control emotions.

Darvas’s story is a timeless testament to the power of independent thought and disciplined action in the pursuit of financial success. It encourages readers to develop their own understanding of the market, learn from their mistakes, and cultivate the emotional fortitude required to navigate its unpredictable waters.

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