book review:
How I Made $2,000,000 in the Stock Market
the  greatest
stock investor
of all time--
Jesus. Why?
Because he is
the only one
who knows
what is going
to happen
It was at an investment group meeting with a guest
speaker—a hedge fund type—and he was analyzing
a chart using something called the Darvas Box
Trading System.

The system occurs in a book—How I Made
$2,000,000 in the Stock Market by Nicolas Darvas. In
10 years of messing with the market and the reading
of—lets say—300 books on the subject—this book was
not known to me. But I was sufficiently interested to
go online the next day and order a copy from Amazon.

The book arrived and I began to read.  The first
thing I notice, according to a blurb on the cover
is: the writer is a dancer. A dancer who made
$2,000,000 in the stock market? That is correct.

Its a short book, 126 pages and I finished in one
sitting and when I did—my head was spinning.

Of all the books I have read, in my life, for the
sheer riveting of attention upon the page, not to
mention equal parts of amazement, shock and
laughing (Ill get to the laughing) How I Made
$2,000,000 in the Stock Market goes right to the top
of the list or nearly. Let me tell you why.

Its 1952. Nicolas Darvas, 25 years old, one half the
ballroom dancing team of Nicolas and Julia, and he is
on the phone with Toronto. On the other end of the
line is Harry Smith, owner of a nightclub and he
wants to book the act.  Now he says to Darvas: What
would you think if, instead of a fee, I give you 300
shares of stock in my company—Canadian Copper?

Nic thinks it over. He knows nothing about the
stock market, or maybe less than nothing—but he
says: why not?

6 months later. Darvas is in Hong Kong—on tour.
Hes eating breakfast in the hotel and someone has
left behind a copy of
Barrons Magazine and now he
remembers something--the 300 hundred shares of
Canadian Copper he owns that has disappeared from
his mind.

I leave it for you to tell me what happens next.

That is correct. He checks out the stock in
and discovers that it has doubled in price from $19 to

He perks right up.

The tour over he returns to the states and his first
priority, biz-wise, is to check this thing out—the stock

Hes told the services of a broker are required to begin
trading. So this he does, to open an account, on the
Canadian exchange because this is where he made
his killing and now for his first buy.

To the broker he says (this is where the laughing

What looks good?

The brokers says: Eastern Malarctic.

Fine. He buys 1000 shares at $2.90

A week later its at $2.60 and the week following

He sells off.

Next: Old Smoky Gas and Oil. To buy at $19 and sell
at $10

On to KayRand Mining that he buys at $12 and sells at

Whats going on?  Its aggravating.  He doesnt expect
every stock to be a winner—only most of them.

Time passes. He continues to trade. The results are
mixed. A winner followed by a loser followed by two
winners followed by three losers. He is discouraged
but its too late for that—to bail. Hes been seduced by
the market and with every trade the addiction grows.
If its a bad trade he will even things up by winning on
the next one and if its a winning trade the next one
will win bigger.

Its called: optimism.

Time passes. Its on to New York where he has a
booking but he is more excited about being at the
center of the action—Wall Street.

He decides to switch brokers and exchanges—from
theCanadian to the NYSE. He needs a fresh start and
this is the place to do it.

To his new broker—his new hotshot Wall Street
broker—he says: What looks good?

The broker says: Columbia Pictures

He buys 200 Columbia at 20 1/4. the stock goes up
and he sells at 23 1/2.

Next: 200 North American Aviation bought and sold
for a profit of $405.63

Next: Kimberly-Clark and another winner: $570.20

This was more like it. Three winners in a row in a
period of weeks for a profit of $1607.54 and he sums
up the action with these words:

It was a feeling, nothing more, but something that was there from
the beginning and now it re-inforced itself: that I was  a natural
on Wall Street.

(Im laughing)

What failed to register at the time was: this entry of
his into the wonderful world of finance coincided with
the emergence of a roaring bull market and for every
5000 stocks out there 4000 were going through the
roof. As someone has said: if you cant make money
in a bull market you need your head examined.

Time passes. He continues to trade. He trades, trades
trades. What began as a minor pastime has become
something else: an obsession:

I traded constantly. I telephoned my broker 12 times a day-or
more. If I failed to make at least one trade a day I considered it a
wasted day. I wanted to own every stock. Stocks for me were like
toys for a child.

He would often sell a stock that had gone up by half a
point. On one trade he made 75 cents. In those days
there was no such thing as the discount broker and  
the commissions could eat you alive. Also you paid a
premium depending on the size of the buy. This was a
small trade with a small profit of $300.75, the  
commission was $150 times 2, one occurring on each
end, leaving him a net of $.75 immediately deposited
to his account.

Meanwhile he has dived into the literature of the
market, to read some of the classics—
of a Stock Speculator
by Lefebre, The Battle for Stock
Market Survival
by Loeb, Security Analysis by
Graham, etc--and some of the not so classic—
Grandma Made a Million, Confessions of a Stock
Market Hit Man
, Bonds Are For Suckers ,etc. Also
Barrons , The Wall Street Journal, The Economist,
etc—also newsletters—the “advisory” services. Lets
not forget the occasional hot tip. Is there any other
kind? Hes a dancer, his life is spent in nightclubs in
the company of business people and athletes and
movie stars—also--waitresses, bartenders, busboys—
and all these people—including the busboy--seem
plugged into the market with a hot tip on a stock
about to blast its way into outer space.

On with the trading. He buys and sells:

Magma copper (-$1,016)
General Refractories (-$59.41)
Virginia Railway (+$11.19)
Doman Helicopter (+$908.67)
Win Lima Hamilton (-$1,266.34)

And so forth.

Time passes—a year. He decides to review his trading
records and in spite of landing with both feet smack in
the middle of a roaring bull market his profit for the
year is $800. Meanwhile some of the real pros are up
500%, 1000%,
2000%. Its phenomenal.

He plugs along. The market continues to climb with
Darvas aboard for the ride. He has his share of losers
that he blames on the broker. The winners he
ascribes to his own brilliant instincts and natural
market smarts.

But now it happens to him as it happens to us all—the
recognition of a profound truth: that the market is
designed in a particular way, subtle and non-obvious,
and there is an intention--to profit the few at the cost
of the many. Hes operating on blind luck, like some
chump who enters  a casino in Las Vegas and to place
a bet on the red instead of the black and why not the
black instead of the read he cant tell you.  He is
forced to admit the market is a mystery and he has 2
choices: to solve the mystery or let the mystery solve

You could put it this way: He needed a system.


A series of turning points begins.  The first occurs with

There is a Wall Street proverb: you cant go broke
taking a profit. With this one in mind he buys and
sells Rayonier 3 times:

In at 53 1/3 and out at 58 7/8 for a profit of $439.46

In at 63 2/3 and out at 71 1/2 for a profit of $687.22

In at 72 5/8 and out at 74 3/4 equals $111.40 for a
total profit on the 3 trades of $1,238.64

Now he buys another stock—Manati sugar—1000
shares at 8 1/4.

The stock immediately takes a dive and he sells out
for a loss of $1043.75.  Hes left with a profit from the
combined action on both stocks of $195.88. Meanwhile
Rayonier has gone to 80.

He says:

Why did I do this? Why did I jump in and out of Rayonier 3 times
instead of  going in one time and staying there to  watch the
stock hit 80?

I dont know Nic.  Because you cant go broke taking a

Now he writes it down--rule #1: dont sell a rising

He is serious and gets more serious. On with the
books and the reading, on with the trading and, most
important, on with the losing of money on the trades
because nothing will sharpen your instincts faster
than that.

The first crisis.

That is what he called it: the first crisis. By this time
he had been in the market for 3 years and taken his
share of hits but so far nothing disastrous.

That was about to change.

The market assembles itself according to sectors—
food, banks, drugs, cars, housing, etc and at any
given moment some particular sector or sectors is in
favor and others are out of favor and with this in
mind you go about narrowing the possibilities.

He came across a company—Jones Laughlin Steel.
The steel stocks were trending up nicely and with a
book called
The Encyclopedia of Accounting and
at his elbow he dives into the balance
sheets and annual reports  of a handful of steel
companies and decides the company with the
strongest fundamentals belong to Jones Laughlin.  

By now with 3 years of trading under his belt the time
had arrived to cash in on all this savvy. His
confidence was high. This was the stock—Jones
Laughlin—that was going to make his fortune. He
decided to buy and to buy big.

He owned some property in Las Vegas and took out a
mortgage. Then he bought on margin—to borrow
money from the broker. He bought 1000 shares of J-L
at 52 ¼ for $52,652. It was sept 23, 1956.

On sept 26 the stock began to slide. It slid and
continued to slide.

Darvas says:

I saw the stock fall and I refused to face reality. I couldnt sell.  
Based on my exhaustive studies this stock was worth $75 a

I loved that line about the “exhaustive” studies.

Darvas was highly disciplined. He never allowed
himself to take a big hit. That was rule #2—to cut
your losses. Any stock that dropped more than 6 per
cent below the price paid must be sold—no

But now with Jones Laughlin he makes the exception.
He was no longer in control of his emotions—rule #3.
The stock continued to tank. It went to 50, to 48, to
46. It went to 44. At 44 he awoke from the coma.
The paralysis lifted. He sold off for a $9,080 loss. (I
remind you this is 1954)

He was crushed. He was on margin and now he fears
the loss of his property in Vegas.

What happens next is something called: praying to

He briefly considered throwing in the towel, market-
wise, to leave investing to the investors--and return
tosomething he knows: dancing.  But he couldnt give
up. The thought of giving up was a horror to him.

Confidence is confidence, in the market as in anything
else and his confidence was at low ebb. But so be it.  

Back to the stock tables—looking for salvation—to
snatch victory from the jaws of defeat.  

His eye fell upon a stock—Texas Gulf Producing. He
knew nothing about the company--unlike Jones-
Laughlin Steel that he knew everything about and lost
$9,000. But Texas Gulf was rising nicely, day after

He jumped in—1000 shares at 37 3/8. The stock
continued to climb.

He says:

I watched this stock the way a parent watches a new born child. I
phoned my broker every hour—sometimes every 15 minutes.

(the broker must have loved this)

He held the stock 5 weeks. It went to 43 ¼ at
which point he could no longer bear the strain
and sold off for a profit of $6,000. he was back in

The disastrous hit he had taken on the Jones Laughlin
Steel trade had shaken him severely and now he sat  
down to type out in capital letters his Five Rules for
Stock Market Success:







The bear market of 1957

The market operates in cycles as we know—the bull
and the bear—to follow each other as certain as
night follows day or the ebb and flow of the tide.
And now in the fall of 1957 it was time for the bear to
stir and emerge from hibernation and sniff around for
something to eat.

But Darvas was spared the carnage. He had a system
and the cardinal rule was--to cut your losses and
now, one by one, every trade gets stopped out. He
has zero winners.  All of them fail. There  he is on the
sidelines—out of the market—watching as one after
the other  his stocks tank. Down into the toilet they
go, down, down, down—by 30, 50, 90%. Now that
you no longer own them--its a cool feeling.

He says:

I had one loser after another and it was disheartening. I thought
it was me. But it was the market. The market was tanking and I
had anticipated it. I didnt know I anticipated it but I  anticipated it

The theory

He had learned something from the Jones Laughlin/
Texas Gulf trades–a powerful lesson. A stock with
strong fundamentals was always a plus. But more of
a plus was— momentum. That was the breakthrough-
when he began to tinker with the system that made
his fortune.

Darvas was an artist—the intuitive type. But there
was this other part of his brain—the stock market
part—dormant for all these many years that has
sprung back to life--with a vengeance.

He conceived the notion—to visualize the chart of a  
rising stock as a series of ascending boxes, stacked
up one above the other like a pyramid. Hes looking
for something—a rhythm. Stocks behaved according
to a rhythm. The trick was to identify this rhythm—
not so easy. But if you could identify it you could then
visualize something—this image of a rising stock as
pyramid of ascending boxes.

He proposes a metaphor—-the dancer preparing to
execute a leap. To make the leap she must first
gather herself and to store up energy—to assume a
crouch. A stock does the same thing—as Darvas see
it. The stock bounces around inside the box, up and
down, up and down, preparing to make the leap—
into the box above. Then it makes the leap—on high
volume. Volume was the key.  Volume told you that
something was going on—heavy buying.

Its when the stock penetrates the upper boundary of
the box it is in to establish the lower boundary of the
next ascending box that is your buy point.

Now all that remained was to establish the
parameters of the box—the upper and lower
boundaries. I wont describe how this was done
because it gets technical. Also its non-objective. Chart
reading is an art and If five analysts analyze the
same chart you will get five different interpretations.

But it looks something like this:  

Time passed. The bear market bottomed out and a
few stocks began to perk up and find their bearings.

He devises a watch list of candidates to test the
theory—stocks rising on heavy volume and one by
one he ventures some small buys and one by one
they seem to work. He has a loser here and there but
even the losers—as he sees it--seem reluctant to
contradict the theory.

He does some tweaking—as must be done on any
new system or concept of profound vision. He
tweaks, tweaks, tweaks.


Lorillard was tobacco.  Lorillard  pioneered the filter
tip cigarette and now the Surgeon General issued a
lung cancer alert and the filter tip cigarette market
was about to explode. Darvas, on tour in Saigon, had
heard something about the lung cancer report but a
story was just a story, that everyone else in the
world had also read. That was rule #4: DONT READ
STORIES. He was interested in one thing: the tape.
The tape was looking good.

He kept an eye on Lorillard and at some point
decided a box could be established with a range of 23-

It bounced around within this range for several weeks
on average volume but slowly creeping higher.
Something was cooking. He wired his broker to buy
200 shares when the stock penetrated the upper limit
of the box—27.

And this it did—on huge volume--to establish a new
box—27/32. Then another box on top of that box—
with more volume. December became January. The
stock was at 37.

He was tempted to sell and take a quick profit. But he
recalled the Rayonier/Manati sugar debacle and rule

Meanwhile the SEC decided to make a change in the
margin requirements--to lower the requirement from
70 to 50. He could buy 20% more stock on credit. He
loaded up on Lorillard.

He says:

I had no fear of buying on margin. I had confidence in the
system. The stock was acting as though it was the stock I had
designed my system around.

He bought  400 shares between 28 5/8 and 32 1/4
and another 400 AT 36 7/8. He owned 1000 shares
equals $35,827.50

Meanwhile he still had some cash in the account
because he was doing all this buying on margin and
now another stock caught his eye—Diners Club—the
first company to spring a splendid new toy on the
shopping public: the credit card.

He began snapping up Diners Club, getting in at 22
1/4. He bought 500 shares. He bought another 500
at 26 1/2.

Lorillard began to cool off and he sold out
at 58. his profit on an investment of 35,827 was

Diners Club went to 38 and began to slide and he sold
off at 36 3/4. His profit on Diners Club was $10,328.
In two months on an investment of $57,200 he scored
for $32,670.

That was the breakthrough—the Lorillard/Diners Club

Now he had a stash of $60,00 that combined with the
new lowered margin requirements meant he could
buy $120,000 worth of stock at a pop.

There is one last story: EB Bruce. It was the
small fortune on the EB Bruce trade that anticipated
the larger fortune to come.

EB Bruce was an OTC stock--Over The Counter—a
non regulated exchange and a risky move because
you could never be sure, when you decided to sell, of
getting your price. But there was something about
this stock—the way it was moving. It was like
Lorillard—as if his system had been designed around
this particular stock.

The stock had been trading at low volume, 5000
shares but now the volume jumped, to 40,000 to
60,000 to 90,000 shares. The price went to 50, then
down to 43.

Darvas says: I could not be sure but this reaction
seemed temporary—a refueling. But the volume was
there, the price action, the rhythm of the advance. I
felt this stock in my bones--that it would continue to

As someone has said: God bless the investor who
feels a stock in his bones.

He was on the road in India and cabled his broker to
buy the stock at 50 ¾--500 shares.

The stock continued its climb and each time it bumped
up a point or 2 he bought 500 shares.

He winds up with 2500 shares of stock—$131,000.
(The man had balls!)

The stock continues to climb. In 3 weeks its gone from
50 to 77.

Now hes a wreck. Something is going on with this
stock—the OTC stock.

He is tempted to call his broker but before he can
call the broker the broker calls him.

The broker says: they suspended trading on the stock

What does this mean? He fears the worst.

He says: Ive lost all my money.

The broker says:  you havent lost your money. On the
contrary the stock is up 25 points. Its at 100. You’ve
got all these short sellers out there who, unlike
yourself, decided the stock was overpriced and they
all went short. Now they are trying to get out. Its a

Darvas says: What should I do?

A broker will never tell you what to do. And the
reason is—he doesnt know what you should do. That
isnt his job. His job is to “advise”. Theres a difference.

He says to Darvas: I advise you to sell.

Darvas: Ill call you back.

Is the element of luck underrated—or overrated? I
dont know. But it was Branch Rickey, baseball
general manager, who said: luck is the residue of
design. And there is another saying—same thing--luck
favors the prepared mind.

What Darvas—and his broker--did not know about the
stock was this: a businessman in New York, Edward
Gilbert, was trying to take over the company. The
stock was going through the roof because Gilbert was
snapping up all the shares. Also, as the broker
mentioned, you had all these short sellers trying to
cover their positions at any price. But there were no
shares to buy. Gilbert and Darvas owned them all.
The result was a panic and the exchange shut down.

Darvas was in agony. He says:

As I listened to my broker I had a strong desire to
sell. But then I made a momentous decision—not to
sell. Why?  Because I had no reason to sell. The
stock was still rising. I recalled something Jesse
Livermore said in one of his books—that he made most of his
money waiting. Patience was the key.

So he hangs on to the stock that continues to go
through the roof and when he does sell off it averages
out to $171 a share and he collects a profit on the
trade of:  $295,400.

And there you have it—the Nicolas Darvas story—one
half the ballroom dancing team of Nicolas and Julia.
But the best part of the story is this: no one
believed the story. That someone like Darvas—via his
own natural intelligence and creativity and superb
imagination and sheer persistent stubborn
hammering drive—could devise a system to penetrate
the mysteries of this devious beast—the market. No--
it could not be done. It was either blind luck or-- he
got a tip.

Thats what they said: you got a tip!

Thats the best part.
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