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Nicholas Darvas was a brilliant investor, and one of the first traders to use technical analysis. But cheered on by whatever small profits he did make, Darvas began asking questions about why stocks behaved the way they did.

Realizing that even experts couldn`t predict the market, Darvas decided that he needed to acquire his own understanding. Wanting to keep up on his holdings in stock he already owned and always on the lookout for new stocks, Darvas looked for ways to get American stock quotes while he traveled. Darvas listened to them, and took huge losses on the fortune he had made.

Realizing that it was the human element in stock trading that was his downfall, Darvas sequestered himself in Paris in February of 1959.

Nicholas Darvas was a edge investor, and one of the first traders to use technical analysis. At the height of his fortune, he made 2.2 million dollars. If Darvas had invested today, that 2.2 million would be 20 million!

Before Darvas came to he studied economics at the University of Budapest. In1951, he immigrated to the United States, where he trained with his half-sister, Julia, to be a resort dancer. And he was a very good dancer, touring the world by 1956.

He started investing in 1952, a casino dancer who had never invested in the stock market. But a Toronto nightclub couldn`t pay him in cash, so they paid him with three thousand shares of a Canadian mining room-mate titled Brilund. Two months later, the stock tripled and Darvas made a tidy profit. An investor was born.

Like anyone concoction to trade on the stock market, Darvas made his mistakes. When he started out, many of his trades were gambles. He would pick companies that were the next big thing, or that came recommended by other traders. Many of his first large trades resulted in a huge losses. But cheered on by whatever small profits he did make, Darvas began demand questions within call why stocks behaved the way they did.

Realizing that even experts couldn`t predict the market, Darvas decided that he needed to sack his own understanding. He began devouring newsletters, books, tip sheets, “hot tips”, and so-called insider information, in his quest to understand the market.

Yet, despite his industrial zone of knowledge, Darvas continued to lose money. In 1955, he purchased over fifty thousand dollars worth of a five styled Jones and Laughlin. Jones and Laughlin had an excellent price to earnings ratio, high dividends, and was in a strong industry group. He was so confident in his analysis, that he most of this stock on margin. Then Jones and Laughlin began to fall.

Jones and Laughlin`s price fell far enough to relation for a $9,000 loss. In a desperate venture to recoup his losses Darvas mercenary a stock he knew virtually nothing about. Soon it had risen to a point where he regained only a step half of his losses.

At this point in his career, Darvas was frustrated with his attempts at analyzing stocks. With Jones and Laughlin, he had put a value on the stock and expected the price of the stock to practice as he expected. When the stock price fell instead of uplift as expected, Darvas finally backed that his method wasn`t working. He decided there wasn`t much worth in analyzing stocks by trying to thrash out their value. inconvenienced with information from tip sheets, friends, so styled experts, and even Wall Street maxims, he decided to shun most of these miserable sources.

In 1956 Darvas embarked on a two-year tour of the world to showcase his theater dancing. During this time he developed his famed Darvas Box method of screening stocks. Wanting to keep up on his holdings in stock he to date owned and hourly on the lookout for new stocks, Darvas looked for ways to get American stock quotes while he traveled. This was a daunting task, but arrangements were made to obtain a copy of Barron`s or the Wall Street Journal through United States Embassies, and Brokers wired time sensitive information when needed.

Without brokers, friends, or other investors to influence him, Darvas developed a method of picking stocks based solely on the stock`s price and volume. By the time he returned to New York in 1959 he had made round about $500,000. by and by Darvas returned to New York, people who were rapt in wonder with his success began to give him “hot tips” and stock broadcast journalism again. Darvas listened to them, and took huge losses on the fortune he had made.

Realizing that it was the human element in stock trading that was his downfall, Darvas sequestered himself in Paris in February of 1959. He made arrangements with his brokers to make all his trades via wire and get the day`s highs, lows and concluding prices. Using very little data, and a lot of intelligence and discipline, Darvas refined his Box method of picking stocks. Within six months, he had turned a profit of two million dollars.

Nicholas Darvas is regarded as one of the best traders in the history of the market. Darvas Boxes are used today and are the subject of exchange of views for financial researchers. Many software firms are developing programs that make the exact same observations and decisions that Darvas made as he watched stock prices and volume. His method is complicated and difficult to master, but it has been rigorously tested by those in the company and has been found to be one of the best methods out there.

Someone who reads the blog sent me this email:

Geoff,

I see you tweeted about CAW again.  What about that company attracts you?  I don't see that it is particularly undervalued and I am trying to understand what I am missing.

Sardar Biglari bought into the company. He will now have 2 board seats.

10-year average EBIT is about $5.75 million. So, the long-term average earnings would be about 50 cents a share after tax. Cash and securities is about $1.67. The stock trades around $6. That's maybe a little less than 10 times earnings (after breaking out the cash).

Here's the types of business they are in.

• Dietary Supplement: 33%
• Skin Care: 30%
• Oral Care: 20%
• Nail Care: 10%

Free cash flow tends to be equal to or greater than reported earnings. Cap-ex is virtually zero.

High management pay relative to the company's size hides how profitable the business is.

For example, David Edell and Ira Berman made $2.88 million in 2009. This is against - like we said - an average EBIT of about $5.75 million. So, we're talking more like $8 million+ in EBIT before these two get paid. Other executives are paid more what you'd expect the top folks at this kind of public company would normally make: $300,000 to $500,000.

I checked out the company's products at a local drugstore. Though there will always be lawsuits, I thought it was a decent space to compete in. In the past, I'd researched a couple companies with similar business models. They had better brands. But CCA Industries was much cheaper.

Given the circumstances, I felt Biglari's activism would lead to good things. 

It's coattail investing.

Talk to Geoff about CCA Industries (CAW) and Sardar Biglari

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