Think you can beat the market? Hope springs eternal. Malkiel's classic book discusses how it is extremely unlikely that you will in the long run, so that low cost indexed funds reflecting the entire stock market are your best bet. The author has experience in both the academic and corporate worlds, and presents a fascinating mix of theory and experience. My favorite passage is where a technical analyst sees a stock chart generated by one of Malkiel's students by flipping coins. He is upset that Malkiel didn't share knowledge of this stock with him, since the analyst sees the classic inverted head and shoulders shape in the graph, meaning the stock is about to soar.
The negative reviews here at Amazon are a fun read, as some people absolutely hate the idea that the market is unpredictable in the long term, regardless of the evidence. Sure, you invested in stocks and beat the market. You were lucky and flipped heads 5 times in a row - that does not prove you're a market-predicting genius. How is it that "hot" fund managers somehow become less hot some years later? Did they get dumber, or did they just stop flipping heads? There are some minor short-term predictable trends in the market, and Malkiel discusses most of them in turn, pointing out that it's almost impossible to take advantage of any of these. But stock charting and number manipulation he puts up with reading chicken entrails as far as reliability goes. He discusses other schools of thought for market or stock prediction, showing how research shows these also don't beat the average over the long term. Of course, there's always another new strategy that comes into style (e.g. The Motley Fool's "Foolish Four", which has perfect predictive powers for past results, and I predict will work in the future up to the point that it no longer works). Malkiel offers modern portfolio theory in place of fads. The short version: buy and hold, and diversify.
We as humans like to form patterns from randomness and assume that logic prevails. Just because we like it doesn't mean it works... See Jason Zweig's article "The trouble with humans" (Nov. 2000) at Money Magazine online for a great article on this tendency [He also has a good article and follow-up on the "Foolish Four" strategy, and many others in this vein].
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A Random Walk Down Wall Street: The Best Investment Guide That Money Can Buy
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About the author
Great Investment Advice for the average Joe
Burton Malkiel is a well-known American economist who currently serves on the Vanguard board of directors.A random walk down Wall Street is his most famous work and it is quite remarkable indeed. You should know beforehand that his views lean towards the Efficient Market theory which proposes that market prices are always efficient, nevertheless he divides the theory into three sub-categories(weak, semi-strong and strong) and identifies himself as a proponent of the theory in discussion at the semi-strong version.There has been a big stir in the financial community due to the EMT intention to explain in a logic manner stock prices movements, which in my opinion are efficient most of the time but on other circumstances can fluctuate wildly due to human over-confidence and over-pessimism. The author succeeds in putting himself on a third plane and explaining both sides of the argument.Apart from this, the book makes a great overall case of most investment vehicles and anybody, no matter how seasoned, can greatly benefit from it. On the last pages, you will be able to find a valuable spreadsheet that encompasses many different kinds of assets you can invest in; don't be alarmed if he recommends Vanguard(after all, it's one of the best funds out there).Hope to have been helpful, all the best
Top reviews from other countries
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- MLReviewed in Canada on October 1, 2024
This book was ok, but it's not as good as the 1996 version.
