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8 of 10 people found the following review helpful
on July 27, 2013
Format: Paperback
This book was published in 1973 and debunked in 1984 by Warren Buffett. It is outdated, ineffective and useful as a history lesson only. Once you've read 5 decent investment books you will know all the info already. Then add some brochures from your local bank. The bulk of the book consists of gossipy details written in a very seductive fashion meant to discredit all rival investment strategies. It has fooled many people. It borrows Buffett's "buy and hold" philosophy while disrespecting just about everything else. In 1984 Warren Buffett gave a speech at Columbia University rebutting Malkiel's book and the Efficient Market Hypothesis. As of 2013 Malkiel has not yet responded, and has ignored Buffett's argument. As Seth Klarman has stated: "Buffett's argument has never, to my knowledge, been addressed by the efficient-market theorists; they evidently prefer to continue to prove in theory what was refuted in practice". Ouch!

[EMH] Malkiel ultimately tells you not to play the game instead of how to play the game. He wrote Random Walk in 1973. It has an interesting history of investment strategies. The book examines many Finance 101 concepts such as beta, fundamental analysis, CAPM, and behavioral finance. Where the book shines is its research, breezy writing style and professional layout. While I felt the writing was good, the outline was good, the research was good, and some of the insights were good ultimately there is one fatal flaw. Every conclusion Malkiel reaches (what to do with the info he provides) seems to be completely wrong or at least hopelessly outdated. Almost every chapter may have to be re-written one day. Warren Buffett and many others tossed it in the trash over 25 years ago. It looks like they have won a battle or two in the war over the Efficient Market Hypothesis (EMH) supported by Malkiel. All Malkiel succeeds in doing is knocking every other investment strategy or tool without considering any of their positive benefits. You can't paint everything with one brush as Malkiel offers the time-worn advice that seems cliche now. Random Walk appeals to some because a segment of the population wants to hear they knew it all along and are just fine doing nothing on their own as a financial strategy. The market is efficient after all so instead of meeting directly with financial experts we will invest into hundreds of securities instead and eventually it will work out. Perhaps in the long-term but maybe not in your lifetime. Investment literature is much more sophisticated now. This is one review I have had to rewrite numerous times. The more you use this book and ponder its message the worse it gets. It is easy to get seduced by reading this book. Remove star.

[Competing Ideas] Malkiel manages to discuss everything in a pleasant tone while smacking it down, reducing it or dismissing it. In its place he advocates cash, treasury bills, ETF/index funds, life insurance and financial planning. Not bad advice but very worn and hardly a replacement after tearing the investment universe down. Malkiel tries to keep it high-brow by dismissing the existence of anomalies when we all know it happens. What makes A Random Walk Down Wall Street controversial is its belief in the EMH and the recommendation to invest passively. It seems everyone has an opinion if that theory applies anymore. I must admit if markets are completely efficient then why bother to learn about investing because no extra return could possibly be made (other than to save on fees and taxes). Everyone already knows everything about every security, right? That doesn't jive with real life. Many more of Malkiel's arguments are flawed. There is value in working with investment or insurance professionals so paying for professional advice in complicated situations makes sense. Obviously that isn't the focus of the discussion. Mutual funds, technical analysis and security selection deserve better treatment than what is provided here too. Despite the author's conclusions (which are the biggest problem) the research and presentation are extremely good. Investors turn to this book for meat and potatoes (and may end up finding the author's hair in their dinner if they don't form their own opinions). Malkiel isn't shy about giving his opinion but does seem to grind his ax at times. Keep in mind any investment strategy can work FOR A TIME and all investments have a PLACE FOR CONSIDERATION. Knowing what do is 10% of the problem and knowing WHEN is 90% of the problem. Most of the book tells you what *not* to do because what you are allowed to do could fit into a bank brochure. Essentially, everything you already know or have read about from other authors is wrong.

[Active Investing] My biggest complaint is the book knocks active investment strategies as totally unnecessary. Certainly all strategies have shortcomings but the advice to passively buy an exchange traded or index fund is overly simplistic to say the least. I'm not saying the stock market is efficient or not. It certainly doesn't seem like it in the short-term. Yet if there was no way to exploit profits men like Warren Buffett, Peter Lynch and George Soros wouldn't exist. None of them bought an index fund and watched the cash roll in. So this book's approach to wealth misses the point slightly. Technical analysis is also brushed off. If you want market returns you can always follow the advice of this book. Yet investors who want more control over their rate of return, risk tolerance, and security selection should look elsewhere.

[Flawed Advice] 1) Do not buy individual stocks or bonds (ETFs are preferred), 2) Fundamental analysis is OK but highly overrated, 3) There is no need to use technical analysis on your portfolio, 4) You are better off investing without a professional (the market is right, people are wrong, come to the index), and 5) Mutual funds don't add value (look only at return versus its benchmark). Malkiel is more than willing to tell you what to do and what not to do. It's just too bad for the reader Malkiel has no idea what he is talking about. How Malkiel manages to slap down every investment concept or strategy except his own is mind-boggling. He is right in taking them down a notch but should consider exceptions to the rule and critique popular strategies in a more scholarly fashion. At least he is consistent in his belief that you can't beat the market averages so don't bother (according to him). So the advice is don't buy stocks, bonds or mutual funds. I'm not making that up. Nor should you do anything but light analysis on the underlying securities in your market-linked portfolio.

Random Walk Down Wall Street does contain an overview of investment ideas for novice investors. There are much better buy and hold, advice providers (notably Benjamin Graham and Warren Buffett) so that's not the problem. It's the caustic treatment of competing ideas. There is little value for more experienced investors. The only thing that Malkiel lets you do is buy exchange traded funds (ETFs) linked to security indexes (e.g. S&P 500). Absorb it if you must, form your own conclusions and move on. Admittedly, Random Walk has held its value remarkably well over the years and is still in print.
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18 of 26 people found the following review helpful
on January 8, 2008
Format: PaperbackVerified Purchase
I bought this book because I wanted to obtain a background on the random walk theory. Despite the title, this book only briefly mentions what the theory is, but doesn't give much supporting evidence. So in that respect, it fails the purpose I got it for.

The beginning of the book does a decent job of presenting a history of "market crazes" which I think would be good for the uninitiated. Anyone who kept buying into the Nasdaq in 1999 - 2000 probably should have read this book.

It also does a decent job of talking about efficient markets and such. Although it lacks in providing support for these hypotheses.

It rather rudely and summarily dismisses technical analysis without providing evidence. The fact that the author basically says technical chartists are obsessed with phallus symbols, was rather unprofessional. I suppose he was trying to be funny.

The author then goes on to discuss risk, but without much practical value.

He basically recommends buying and holding index funds for the long run. Which would probably be okay, except it would be nice to see a discussion on timing the entry. When would be a good buy point?

I would not recommend it to learn how to invest. Only to get a history of investing.
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40 of 59 people found the following review helpful
on August 12, 2011
Format: Hardcover
Many years ago I bought this book about the stock market. In retrospect, it is the worst book I've ever bought because it made me believe in efficient capital markets. The author made his point with a lot of arrogance - just like finance professors did 15-20 years ago. At the time the markets very certainly not as efficient as the author believed. There have been several updates to the book, but the condescending voice of the author remains.

For the statistically interested, the problem with a lot of old finance (and also not so old) research was that it was testing the theory that the market was efficient. That is poor philosophy of science. You should always test the opposite of what your theory stipulates. If you can reject the opposite, your theory is as supported as it can be (standard Popper). The finance profession in their ignorance of philosophy of science tested it the other way around. This means that they could too easily conclude that the markets were efficient. Not a word about such complications in this book. Why is this relevant? I would say that the author is less critical of research that supports his preconceived opinion (as stated in the first edition of the book).

I did not realise this bias when I first read the book. Instead, I believed the author's conclusion that the markets must be so efficient that it is fruitless to try to beat them. That was and is just plain silly. The markets are of course tending towards efficiency, so it is not easy to beat them. This is an important point. However, to state that they are efficient is just plain arrogant. So while there are some very good critical analyses in this book, ultimately it might make you believe in something that is very costly: That you cannot make more money in the stock market unless you are willing to take on a higher level of risk.

Currently a lot of academics are questioning the efficient markets. This research is not taken seriously by the author. I am reminded of Kuhn's comment that the new paradigm only becomes prominent when the old guard dies/retires. Furthermore, a lot of people with a PhD in finance start hedge funds to exploit anomalies in the market place instead of writing academic articles. Wouldn't this be worth serious consideration by the author? Still, there is still room for other inefficiencies. For instance the role of emotions is totally disregarded by academic-finance number-crunchers.

The author also has advice of how to invest. His view is to buy low-cost mutual funds. This is not awful advice, but still why would you buy mutual funds when the average fund doesn't even return average market returns? The only thing you know is that they take 1-3% in management fees every year. Do compound interest on that! In The Financial Times, the author recently argued that stocks in emerging markets are undervalued. It is hard to believe in efficient markets and write an investment column. So he just assumes (contrary to his book) that the markets are inefficient and have not priced those stocks correctly. Check out recent videos from 2011. He says that he believes in efficient markets when it comes to publicly available information. Then he proceeds to state that people in 1999 bought the wrong kind of stocks (Internet, technology), which were overvalued. Yes, I would agree those stocks were in a bubble. But honestly, then you cannot believe in efficient markets. These blaring inconsistencies are remarkable.

If you have read this far and want to give me negative feedback, be my guest. I posted a version of this review on an earlier edition of the book, and the review got trashed be believers. When you get a lot of negative feedback on a negative review on amazon that tells you the author has a lot of worshippers. That should make you worried.

A more rational response would be to read Justin Fox's The Myth of the Rational Market. It tells a much more nuanced narrative about the efficiency of capital markets and prominent academics role in developing ideas and theories. The style of the book is not preachy at all. His stories show academic finance to be a very dogmatic environment in the 80s and 90s. You could be called a communist by the stars in the field and have your chances of employment reduced if you didn't sign up to the belief that markets are efficient. It is all described in Fox's book. Or read Shiller's Irrational Exuberance describing how bubbles have been removed from finance textbooks and PhD syllabi because they doesn't fit with the rational actor model. He has the following to say about the efficient market hypothesis: "one of the most remarkable errors in the history of economic thought". Or read Montier's Behavioural Investing: A Practitioners Guide to Applying Behavioural Finance (The Wiley Finance Series) (or his other books) for more evidence of imperfect markets. Or read Dreman's column in Forbes magazine.
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6 of 10 people found the following review helpful
on February 24, 2011
Format: PaperbackVerified Purchase
The classic layman's read on "Efficient Market Hypothesis" mumbo-jumbo. Towards the end, when Malkiel advised mutual fund investing and badmouthed ETFs, I checked his bio, and yup, turns out he's out of Vanguard. He's a mutual fund shill. Makes me think of the funny quote from Gordon Gekko in the movie Wall Street: "Ya know why mutual fund managers can never beat the the S&P 500? Cuz they're sheep, and sheep get slaughtered."
Read "When Genius Failed" by Roger Lowenstein to see how EMH disciples create havoc.
This book is worth reading for aficionados, but only in a Sun Tzu kind of know-your-enemy way.
The gushing reviews that Random Walk receives baffles all common sense.
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4 of 7 people found the following review helpful
on April 8, 2009
Format: Paperback
This is a useful book to understand the whole efficient market idea. It explains very well why short term speculation is very difficult, but falls short of holding up the efficient market hypothesis in it's most rigorous form.

The latest editions of the book go through enormous contortions to maintain the efficient market thesis despite so much evidence to the contrary a lot of which he actually discusses but fails to refute. At one point he actually recommends that you try to time any NEW money you have to commit to the markets. Of course there is no reason given why new money should treated any differently than money already under risk. I guess his answer would be transaction costs? I find that very weak.

Keeping cash around for buying when markets are cheaper, and selling some of your holdings when markets get silly is so basic to professional risk management, that it is shameless for him to keep touting this stuff.
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2 of 4 people found the following review helpful
on November 19, 1998
Format: Hardcover
While the book is excellent and well written, random walk theory has been proven incorrect time and again. Academia now is shifting away from random walk. Professor Andrew Lo of MIT, for example, has done substantial work showing that technical analysis may be profitable. If the markets were random, this would not be possible. That said, this book was written before such work was available, and offers excellent insights. However, if you are looking for help in your trading and investing, try the technical analysis section.
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0 of 1 people found the following review helpful
on May 24, 2014
Format: Kindle EditionVerified Purchase
I bought this book based on the recommendation of friends and online blogs. It had some good high level concepts, but it felt long winded to me. I enjoyed the interesting stories talking about past stock market crashes, but did not learn many concrete skills from the text. I'd recommend it as a fun afternoon read, rather than a introduction about the market.
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1 of 4 people found the following review helpful
on December 19, 2012
Format: Paperback
This book is extremely biased. The efficient markets hypothesis is exactly what it states; a "hypothesis". There is no documentation/citation for proof of any of these "studies" that the author so often refers to. With that being said, I still found this book enjoyable to read and disagree with. The book does contain some useful and relevant information, and was definitely worth the read overall. If anyone would like some REAL information on this topic, Robert Shiller offers an in-depth lecture titled "Efficient Markets" through "Open Yale"([...]), which can be accessed through the site posted here, or through YouTube.
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2 of 7 people found the following review helpful
on October 3, 2010
Format: PaperbackVerified Purchase
This book involves too much history to state how technical analyst and fundamentalist not able to do better than individual investor as in long term investment. Overstate how people not able to predict future and stock price, but never give enough suggestion or strategy an individual investor should take or not take. To many boring equations and charts. I have found some chapter interesting, but skipped many of them. I don't really recommend it.
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13 of 32 people found the following review helpful
on April 15, 2007
Format: Hardcover
If you are a complete novice to investing and not a rocket scientist I think you will have trouble with much of this book. If on the other hand you are well schooled in Wall Street ways, then you will most likely be bored by this book.

Technical traders will be put off by the attitude towards them. I agree with the underlying premise, that most people would be best served by Index fund investing over a long time frame. However the majority of those people can't follow his technical academic writing.

A major issue that is hinted at slightly but never really discussed is that Wall Street is basically dishonest and slanted towards INSIDERS. The ones inside always make the lionshare of the money. Been there and done that!
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