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A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Tenth Edition) Paperback – January 2, 2012
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It's unlikely that you'll spot many dog-eared copies of A Random Walk floating amongst the Wall Street set (although bookshelves at home may prove otherwise). After all, a "random walk"--in market terms--suggests that a "blindfolded monkey" would have as much luck selecting a portfolio as a pro. But Burton Malkiel's classic investment book is anything but random. Since stock prices cannot be predicted in the short term, argues Malkiel, individual investors are better off buying and holding onto index funds than meddling with securities or actively managing mutual funds. Not only will a broad range of index funds outperform a professionally managed portfolio in the long run, but investors can avoid expense charges and trading costs, which decrease returns.
First published in 1973, this seventh printing of a A Random Walk looks forward and does so broadly, examining a new range of investment choices facing the turn-of-the-century investor: money-market accounts, tax-exempt funds, Roth IRAs, and equity REITs, as well as the potential benefits and pitfalls of the emerging global economy. In his updated "life-cycle guide to investing," Malkiel offers age-related investment strategies that consider one's capacity for risk. (A 30-year-old who can depend on wages to offset investment losses has a different risk capacity from a 60-year-old.) In his assessment of rocketing Internet stocks, Malkiel defends his "random" position well, explaining how "the market eventually corrects any irrationality--albeit in its own slow, inexorable fashion. Anomalies can crop up, markets can get irrationally optimistic, and often they attract unwary investors. But eventually, true value is recognized by the market, and this is the main lesson investors must heed." Written for the financial layperson but bolstered by 30 years of research, A Random Walk will help individual investors take charge of their financial future. Recommended. --Rob McDonald --This text refers to the Audio CD edition.
From Publishers Weekly
Latest edition of Princeton professor Malkiel's bestselling investment guide.
Copyright 1996 Reed Business Information, Inc. --This text refers to the Audio CD edition.
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I have long ago realized that though I am interested in the workings of the market, I am not going to delve to the minutiae of companies and different trades and try to be smarter than someone else on the other side who thinks he’s doing the same thing. Nope. Malkiel and Bogle figured out a way I could get away with making the most return possible with the least effort possible - indexing.
Basically this book is a defense of the efficient market hypotheses, or at least part of it. As I understand it, there are two parts to the EMF. One is that the price is always right. So that there’s no such thing as a bubble ever because all the valuations of the market price of securities are representative of their underlying value. The other part is that there’s no free lunch. Or basically arbitrage opportunities may exist, but they are not predictable nor do they persist. I think that the second part is more true than the first, and that’s what this book really digs into, showing you that there are no persistent ways to beat the market. If that’s true, then the best way to consistently make money is to just buy the market. Thankfully there are financial instruments that make that possible - and they’re where I have my money. Cards on the table, this book is just a giant exercise in confirmation bias for me, but it is confirmation bias well done in clear writing with a well-organized structure. I read this burning through the pages on a long holiday weekend, and I wanted to send it to my parents. I thought again about that. It might be too late for them since I don’t know their financial positions. Maybe I’ll send it to my siblings.
A final note, though. Even though Malkiel shows convincingly that there is no way to beat the the market, there is an odd paradox. For the market to work, it needs people out there who think that they can beat the market. Even if the best strategy is to buy and hold a low cost index fund, if everyone did that liquidity and price discovery would drop. What someone following Malkiel needs is people who think he is wrong and that they can generate “alpha” (returns above the market). This goes against the second part of the EMF, where arbitrage opportunities can’t exist because if you have a way to beat the market, then everyone has a way to beat the market and then once everyone is in, no one has a way to beat the market.
I do have one major area of disagreement. In my experience, most investors need the advice and counsel of an investment professional. We all need someone to check our egos, challenge our assumptions, and to be a voice of reason that fights the emotions of fear and greed that can consume us at market tops and market bottoms and cause us to make bad decisions. Maybe it is a fee only adviser, maybe it is a low fee money manager that uses an index fund, MPT, random walk approach. I understand that several of the discounters are testing such services.
So, read this book, then take notes and apply its lessons to your portfolio. If you don't understand parts of it, then educate yourself.
Also a must: Swedroe and Bernstein. Get them. Then get online to the "Bogleheads forum".
A must for personal investment finance for retirees and those working toward a healthy retirement.
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Will bring your head out of the clouds.