Where Are the Customers’ Yachts?

"This is such a fun book. The author, Fred Schwed, was, for many years, a broker, but it’s very clear, when you read the book, that his real love was for writing. He wrote beautifully. Even now, some 70 years after it was written, I believe this is still the funniest book ever written about Wall Street. Parts of it read as if he wrote it in 2008 or 2009. It’s remarkable how well the book has held up. There are a lot of old books about which people say, “Oh it reads as if it were written yesterday” – when if you actually read the book it doesn’t. This book is different. It’s about process rather than events. It’s about what happens when stockbrokers approach their clients with a wonderful opportunity, what happens when money managers tell customers, “We have the right plan for your money,” what happens when investors decide that a particular financial asset is attractive or unattractive. He doesn’t name a lot of names, he doesn’t talk in specifics about the Pennsylvania Railroad or Radio Corporation of America. He mentions some of them in passing, but he’s talking about process more than events. And because processes are generated by human beings, and human nature never changes, the book has this phenomenal freshness. It really does read as if it were written based on today’s headlines. And the best thing of all about the book is that it is laugh-out-loud funny. It’s a very sophisticated kind of humour, and the more times you read it, the funnier it gets. This is a moment where I should say that I wrote the introduction to the latest edition of this book (though I don’t receive royalties or hold any other financial stake in its success). In my footnotes, I make an ever so slight correction to a bit of folklore that is the source of the title, a wonderful story that Fred Schwed ever so slightly garbled. The title comes from an anecdote that originated from a man named William Travers, who was one of the great speculators on Wall Street in the 19th century. He was one of the sharpest minds on Wall Street, very cynical, almost bitterly so. He was in Newport, Rhode Island one day with some of his friends. They were giving him a tour of the harbour and pointing out the magnificent yachts that were moored there, saying, “This one belongs to this broker,” “This one belongs to that banker” et cetera. At which point Travers asks “Where are the customers’ yachts?” It’s a wonderful quip, which of course still holds. The point he is making is that the brokers got rich and owned big boats and it didn’t seem as if any of their customers had big boats. It’s one of the most wonderful anecdotes in Wall Street folklore. The entire book is just an elaboration of the various ways the financial system has of picking people’s pocket, at every step along the way. What makes the book so much fun to read is that it isn’t angry. It’s full of this mordant, biting humour and it’s an absolute pleasure, that would probably take the typical person three to four hours to read, if that. It also has these delightful illustrations by Peter Arno, who was a cartoonist for the New Yorker . Get the weekly Five Books newsletter I don’t know of any book that is this funny and I know of very few books that are this informative about Wall Street. I know of no books that are both this funny and this informative. So if you want to know how the system works, and you don’t have the patience for a more serious, sober look, pick this one up, because it’ll tell you just as much, but it’ll make you laugh. Hedge funds are customers in one sense, because they consume a lot of products that Wall Street generates – investment research, trading services and a variety of lending and other sorts of products. But hedge funds are also middlemen, because they themselves have customers. Put it this way: the hedge fund managers will tend to have bigger yachts than most of their customers. They may both have yachts, but there’s not much doubt about whose, on average, will be bigger."