117 of 123 people found the following review helpful:
5.0 out of 5 stars
Solid advice for funding your life, July 14, 2004
In a nutshell Malkiel's advice is to own your own home, buy no-load index funds (equities and bonds), buy international index funds, and mix your investments according to your age. You should also have medical and plain term life insurance, and cash on hand for a few months in case of an emergency. This book is a complete course in how to manage your money effectively, whether you're a millionaire or a low-income earner. It also gently but firmly chastises proponents of get-rich-quick schemes such as day traders.
First, the book explains what is financial risk, and points out that everything is risky, even insured savings accounts since inflation can destroy the value of cash. Malkiel describes just how risky various investments are, and how the risk is one investment is often offset by the risk in another. Second, Malkiel describes a variety of specific investments (e.g. no load index funds, your own home, individual stocks) and suggests how individual investors should mix them, depending on their personal circumstances. For instance, an ambitious young woman in her twenties can consider aggressive high-risk high-growth funds. If they boom, she's rich, if they bust she's young enough to recover her losses through income. This would not be true of a middle-aged couple about to pay for their children's college years.
"A Random Walk Down Wall Street" should be in every family's library.
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47 of 50 people found the following review helpful:
5.0 out of 5 stars
All-around sound advice, January 31, 2005
Mr. Malkiel provides an outstanding all-in-one stock book for the educated but non-technical investor. He includes overviews of the financial, economic and psychological foundations for stock markets, as well as entertaining summaries of the history of stock markets in the world and in the U.S. Mr. Malkiel takes a sensible, long-term approach to investing with stocks and bonds, at the same time pouring cold water on various market theories. He approvingly quotes the phrase "the stock market is like a casino in which the odds are rigged in favor of the player" which is probably the best summing-up I've ever encountered when thinking about stocks. Some of his more salient and direct advice includes these gems:
* "A simple 'buy-and-hold' strategy typically makes as much or more money than technical strategies" (p 151).
* "No technical scheme whatever could work for any length of time and ...even if they did work, the schemes would be bound to destroy themselves" (p 167).
* Regularities in stock market movements are arbitraged away over time; whoever spots such a regularity would not tell everyone else, but instead would keep it to him- or herself to get rich (p 168).
* Many analysts are incompetent or are compromised by institutional conflicts of interest (pp 181, 183).
* "The evidence from several studies is remarkably uniform. Investors have done no better with the average mutual fund than they could have done by purchasing and holding an unmanaged broad stock index" (p 187).
* Don't ignore small cap companies: "smaller firms tend to have higher rates of return" (p 239).
* Investors should look for stocks with relatively low P/E ratios and low values relative to their book values (pp 239, 261).
* The only market-timing strategy that makes any empirical sense is to purchase stocks that have had relatively poor recent performance (p 257).
* The stock market goes through manias but is fundamentally logical (p 258).
* Your tolerance for risk should be judged by how well you can sleep at night with your portfolio (p 280).
* Zero coupon bonds can be a good investment if the tax aspects are adequately addressed (p 299).
* "I recommend low-expense bond index funds" (p 300).
* "I now believe that if an investor is to buy one U.S. index fund, the best general U.S. index to emulate is the broader Wilshire 5,000-Stock Index, not the S&P 500" (p 360).
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119 of 137 people found the following review helpful:
4.0 out of 5 stars
An academic's view of Wall Street, May 1, 2003
A Random Walk takes the reader on a path from the point of view of an academic, rather than that of a trader. That is sufficient to make this book different from most other stock market tomes. Malkiel's premise is that neither the the average investor nor the professional trader can expect to perform better that the "market" over any significant period of time. He considers market events to be random, and thus unpredictable. He offers piles of data to support his contentions, and his arguments are compelling.
Yet, those who trade using technical analysis scoff at books such at this, claiming their systems consistently beat the averages. The author points to the fact that most managers of mutual funds, pensions etc. fail to perform better than index funds and Malkiel recommends that public investors place their investment money into broad based index funds. The S&P 500 Index fund is recommended, as it is unrealistic to expect fund managers to perform better.
This classic has been around for 30 years and this revised edition is worth your time, especially if you have never read an earlier edition. Just be aware that many technical traders consider this to be a work of fiction.
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