How I Made $2,000,000 in the Stock Market by Nicolas Darvas

After a while, when the first initial break in the market wore off, my opportunity came. Certain stocks began to resist the downward trend. They still fell, but while the majority dropped easily, following the mood of the general market, these stocks gave ground grudgingly. I could almost feel their reluctance. On closer examination, I found the majority of these were companies whose earnings trends pointed sharply upward. The conclusion was obvious: capital was flowing into these stocks, even in a bad market. This capital was following earning improvements as a dog follows a scent. This discovery opened my eyes to a completely new perspective. I saw that it is true that stocks are the slaves of earning power. Consequently, I decided that while there may be many reasons behind any stock movement, I would look only for one: improving earning power or anticipation of it. To do that, I would marry my 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.

As I flew around the world, I was constantly searching for stocks that would climb into the stratosphere because of the vision of their future. This attitude was a preparation for what I suppose you could call high-territory trading. I looked for stocks that I thought could make new highs and I decided to give them my full attention when they had climbed on to the launching pad and were preparing to rocket up. Now these stocks would be more expensive than ever before and so they would look too dear to the uninitiated. But they could become dearer. I made up my mind to buy high and sell higher.

The truth was that as my pocket had strengthened, my head had weakened. I became over-confident, and that is the most dangerous state of mind anyone can develop in the stock market. It was not long before I received the bitter lesson the market always hands out to those who think they can carelessly master it.