The Darvas Box: A Timeless Classic-Part One
In the late 1950s, Nicolas Darvas was one half of the highest paid dance team in show business. He was in the middle of a world tour, dancing before sell-out crowds. At the very same time, he was on his way to becoming a long forgotten Wall Street legend, buying and selling stocks in his spare time researching only in Barron's weekly newspaper and using telegrams to communicate with his broker. However, Darvas turned a $36,000 investment into more than $2.25 million in a three-year period. Many traders argue that Darvas' methods still work, and modern investors should study his 1960 book, "How I Made $2 Million In The Stock Market". Read on as we cover the Darvas Box trading method.
Darvas Who?
Darvas began his trading career in the speculative Canadian stock markets and his first purchase led to a profit of more than 200%. His initial success was short-lived, and the rough and tumble Canadian markets soon took back his profits, and then some. Several years later, he turned to the New York Stock Exchange and brought a trading mentality to the market.
In the late 1950s, Nicolas Darvas was one half of the highest
paid dance team in show business. He was in the middle of a world tour,
dancing before sell-out crowds. At the very same time, he was on his way to becoming a long forgotten Wall Street legend, buying and selling stocks in his spare time researching only in Barron's weekly newspaper and using telegrams to communicate with his broker. However, Darvas turned a $36,000 investment into more than $2.25 million in a three-year period. Many traders
argue that Darvas' methods still work, and modern investors should
study his 1960 book, "How I Made $2 Million In The Stock Market". Read
on as we cover the Darvas Box trading method.
Darvas Who?
The
path Nicolas Darvas took to stock market riches is unique. He fled his
native Hungary ahead of the Nazis. Eventually, he reunited with his
sister and they began dancing professionally in Europe after WWII. When
he wasn't performing, he spent countless hours studying the stock
market. Darvas read anything he could get his hands on. He gained an
understanding of the fact that stocks are risky and taking profits is
the key to riches. (To learn more about stocks, read the Stocks Basics tutorial.)
Darvas began his trading career in the speculative Canadian stock markets and his first purchase led to a profit of more than 200%. His initial success was short-lived, and the rough and tumble Canadian markets soon took back his profits, and then some. Several years later, he turned to the New York Stock Exchange and brought a trading mentality to the market.
Trading Philosophy
Trading was not easy at that time. Stock investing in the 1950s required a full-service broker. Buying high-quality, dividend-paying stocks was the most common investment philosophy. Commissions were high, and investors favored dividend income over capital gains.
Darvas brought his unique techno-fundamental theory of investing to
this market, with no consideration of dividends and clearly defined stop-loss points.
To identify trading candidates, Darvas applied a distinctive fundamental filter. He looked for industries he expected to do well over the next 20 years. In the 1950s, electronics, missiles and rocket fuels fascinated the American public. Companies in these industries would benefit from revolutionary new products that would lead to exponential earnings growth.
In thinking this way, Darvas had learned from his study of stock market history that he could profit greatly if he could anticipate the next big thing. He notes in his book that in the late 1800s, railroad companies ruled Wall Street; a generation later it was automobile companies that represented an emerging technology. Investors were always on the hunt for the something new and exciting. To find stocks with the greatest potential, his research indicated that you needed to find the industries with the greatest potential.
