A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Revised and Updated)
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The million-copy bestseller, revised and updated with new investment strategies for retirement and the insights of behavioral finance. Updated with a new chapter that draws on behavioral finance, the field that studies the psychology of investment decisions, here is the best-selling, authoritative, and gimmick-free guide to investing. Burton Malkiel evaluates the full range of investment opportunities, from stocks, bonds, and money markets to real estate investment trusts and insurance, home ownership, and tangible assets such as gold and collectibles. This edition includes new strategies for rearranging your portfolio for retirement, along with the book’s classic life-cycle guide to investing, which matches the needs of investors in any age bracket. A Random Walk Down Wall Street long ago established itself as a must-read, the first book to purchase before starting a portfolio. So whether you want to brief yourself on the ways of the market before talking to a broker or follow Malkiel’s easy steps to managing your own portfolio, this book remains the best investing guide money can buy. .
Basic Understanding Very good book, the author takes you behind the scene of Wall Street and history of the market. He goes over the basics of our economy and the different avenues of investing. This is a must read for anyone who want to start investing but is confused on where to start. I would have given this book 5 stars if he had written down a step by step process to investing. I recommend this book 1st and then read Jim Cramer's Mad Money, he gives the step by step procedures I was looking for in his book....more info
Great price, fast delivery Super price for a new hardcover version of this classic investors guide....more info
The Only Investment Book You Will Ever Need This book is excellent. It advocates maintaining an asset allocation of stocks, bonds, cash etc., that is appropriate for your age and risk tolerance. The stocks should be in a low fee total market stock index fund or in an exchange traded fund ETF. Read the book for the proper mix of stocks and bonds to maintain in your portfolio for your age.
I read a copy of this book about 23 years ago and did not follow its advice because I thought I could outsmart the market. I subscribed to many financial magazines and newspapers, thinking that knowledge is power. I found that you can get as many bad tips as good tips. It's basically a flip of the coin. With the advent of the internet, I searched the internet for the latest recommendations from the famous gurus of the day.
During the recent bear market of 2001, a very famous bond guru predicted that the Dow with go to 5000. It wasn't until the Dow turned up substantially before the bond guru admitted his mistake. There is also a famous Dow Theory interpreter, who writes a monthly newsletter. He hinted that the Dow would go to 3000 and the total stock market index of 5000 stocks would lose about half its value to 6000. He was very bearish when the market turned upwards in 2003 and stayed bearish until recently, as the Dow is at an all time high. Many of his subscribers are very angry at him because his bad call kept them out of the market for the bulk of the recovery. It appears that it is more profitable to sell advice than to take it.
Following the advice of gurus can be detrimental to your financial health.
I've learn that recommendations from gurus and financial publications have an equal chance of being a good or an asinine idea. Financial magazines and gurus have ZERO predictive value and they want to get you into a dependent relationship in which you are waiting for the latest hot tip month after month.
This book recommends that you cancel all subscriptions to financial publications and newsletters and just maintain the appropriate asset allocation. This is very good advice. It will save you countless hours of useless research. After 23 years, I'm back to square one and I will now follow the advice in this book....more info
Well-written, has the right caveats This classic has been updated. Malkiel writes in a clear manner. The life-cycle chapter is particularly well done. This book is worth the purchase price, to say the least....more info
Stop messing with it !!!! A diversified portfolio of solid stocks kept for the long run. I wish that had been my strategy last year when I moved my entire portfolio into more volatile investments approximately two days before the market took a huge dump. A Random Walk will finally allow you to relax with your investments knowing that you have a strategy that always wins in the long run....more info
No delivery It has been about three weeks and I have not yet received this book yet. ...more info
Is the market really a random walk? Is the market really efficient? This a great classic book by a highly distinguished academic.
It is a fascinating book in all of its editions through the years, not the least because it stimulates thought.
I have one rather significant difference with Professor Malkiel.
On page 253 of the hardbound editon the author writes about the "The Dividend Jackpot Approach". On page 254 the graph clearly shows the historic evidence indicating that future stock returns are higher (and risks lower) when the current dividend yield on stocks are higher rather than lower. So far so good. That is correct.
But then the author that these finds "are not nessisarily inconsistent with efficiency. Dividend yields of stocks tend to be high when interest rates are high, and they tend to be low when interest rates are low"
I don't know whether that is true on a statistical basis. I believe that John Bogle of Vanguard fame has done some work on that issue, and failed to find a statistical relationship between stock yields and bond yields.
In any case, I can think of some extremely important times when stock dividend yields did not reflect interest rates generally.
In 1946, for example, stock dividend yields were extremely high, around 8%, whereas interest rates were extremely low. Low term bond yields were in the range of only 2%.
Those investors who believed in buying value would have bought stocks and sold bonds. Those investors who, to the contrary, believed in efficient markets, would have thought that stock dividend yields and bond yields were simply reflecting economic conditions. The efficient market enthusiast would not have bought stocks and sold bonds.
Guess what? It was a great time to be in stocks and out of bonds. Bond investors lost considerable amounts of money in both nominal and real terms in the years after 1946. Stock holders had some great years. Efficient market enthusiasts were wrong.
Those of us who were active in the markets in the year 2000 may find it difficult to accept the efficient market hypothesis based on our experience in those years.
In the year 2000, stocks were bid up to the point where the Standard and Poor 500 were yielding only 1.15% from dividends. The Fed funds rate averaged 6.24% for the year 2000, Moody's AAA corporate bonds averaged 7.62% yield for the year. Those of us who look at value could not quite figure out how the stock market as a whole could possibly be a good buy in the year 2000. I didn't seem to make any sense at all.
Those who believed in the efficient market hypothesis advise investors not to try to pick value, not to try to market time, because the stock market is simply too efficient for that. They assured investors that stock priceds simply reflected economic conditions in 2000. They advised investors to stay with stocks, and even to continue to buy stocks on a dollar averaging basis, even in the year 2000 when stocks appeared to be so terribly overpriced.
Well, as it turns out the efficient market investment advisors turned out to be wrong, disastorously wrong. There was a correction in stock values starting in the year 2000, and stock prices fell very significantly until the end of 2002. Bond prices, on the other hand, were an extremey good buy in 2000.
This was not rocket science. It just didn't make common sense to be buying or the holding the broad stock market index in the year 2000, based on a simple calulation of relative yields.
In 1946 and in 2000 stock dividend yields did not in fact simply reflect interest rates on bonds. The value investor would have done much better than the efficient market investor, and this has been repeated many times in history.
So while this book is a great fun read, and an investment classic, the average investor should be aware of substantial evidence to the contrary of that presented in this book.
There is another point of view....more info
Don't hire an investment advisor. Buy this book! Especially in these tumultuous economic times, you owe it to yourself to read this book! My first accountant taught me that, "No one cares as much about your money as you do." This book teaches you how to manage it yourself, saving thousands of dollars of fees to investment advisers who often have their own interests ahead of yours.
This book changed my life. And I can't say that about many books.
-Steve Parker, M.D., author of The Advanced Mediterranean Diet: Lose Weight, Feel Better, Live Longer...more info
A Classic with one main flaw Professor Malkiel is one of the few professors who has actually done independent research on performance of traders, mutual fund managers, and stock analysts and why most fund managers and stock analysts cannot do what they are expected to do: beat the market or pick out the winners. The author also lays out classical cases investors caught in the middle of bull market hype shows what is obvious to us: most people lose money. He concludes the book with sound recommendations that would be helpful for people who are getting introduced in the investing world.
One thing I hoped that the author has addressed is the fact that we have managed/rigged markets and natural consequences of having them. Many researchers tend to assume that the market is free of any significant forces trying to influence or rig it, but they should look more into fields of political economics and history. This is why we have some phenomenon like Warren Buffet or some very few star traders.
It is nice to live with an ideology that the market is relatively free and efficient and everyone gets a fair chance, but it is not the case. There have always been hidden, outside forces that have managed to write their own version of history.
I recommend readers to check out THE CREATURE FROM JEKYLL ISLAND - A Second Look at the Federal Reserve and Crash Proof: How to Profit From the Coming Economic Collapse (Lynn Sonberg Books) to complement this classic book.
You may also want to check out Max Keiser and his documentaries to shed some light on techniques that big players use to rig the markets....more info
Must read- Common sense advice for Wall Street novices This is the first book I read outside normal econ/finance textbooks. The 7th edition is updated with a chapter on behavioral finance, which explains thoroughly the irrationality of the market or the hype/bubble that is no longer rare today. The book is awesome and useful for novices desperate to become a real investor. In short, the Princeton professor Malkiel concludes that buy-and-hold is the one and only strategy and index fund is the way to go. Malkiel also cautions that since S&P 500 indexing technique has been exploited for a while, it is better to increase the number of small companies-other kind of stocks and funds i.e. index MORE. A comprehensive list and tables of different mutual funds are provided with a moderate preference for Vanguard. I particularly found the chapter on retirement fund exceptionally valuable. At 20, probably you don't think much of 401k or annuity. Read the book, you will think differently AND invest more wisely. Disclaimer: If you have a gambling bug and like to pick high risk-high return stocks, note that Lady Luck does not always stay with you. The future CANNOT (this is repeated several times in this book and in several other books as well) be predicted by the past. Your chart analyst may protest. But hey, we have bull and bear periods as well as big crashes in the US, UK and Asia. You name it...
In a nutshell, read the book but don't worship it like a bible. Any best selling guide is for the mass. You don't want to be part of the crowd. Keep your critical mind. I believe that once you are in Wall Street for a while, you will think differently from Malkiel in 2007....more info
It can't hurt When you open an online brokerage account, there's always that section on disclaimers and responsibilities you much check before permitted to open the account. I believe that an additional box should be added then "checked" to confirms you've read a "Random Walk" before given the opportunity to piss away hard earned cash. I'm fortunate, I got hold of this in 1998 and look forward to the new revisions. Not that it has kept me from feeling the pain of down markets, but I'm still in the game. I certainly think it is worth the time and expense.
Trying to Understand the Market? Read Random Walk I purchased this book as a supplement to my Corporate Finance class. I loved the title because Wall Street returns are pretty random and have driven many mad lately....more info
Excellent! Perhaps, one of the best available classic books for investors which cuts through whole of financial Jargon and would ensure the reader understands the subtleties of the subject. ...more info
Investment Classic This is an investment classic that belongs on any investor's bookshelf. A caveat to those who read it--it's not something you can skim through or power read quickly on a train ride, it contains pearls of wisdom and you need to reflect on it over time. The first time I read it was in College and then again in Business School a few years later. I've found that I've gone back to it again and again and have re-read it over five times so far. For those with less patience for statistics, please consider the Random Walk Guide to Investing, also by Malkiel. It's essentially a condensed version of this and distills its core elements into just over 200 pages instead. ...more info
Wake Up Call This was very enlightening and easy to read. Anyone who is invested in the stock market should read this, especially if you have experienced disappointing returns. A must read for the serious investor....more info
A practical guide for both new and seasoned investors Burton Malkiel's book "A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition" is easy and fun to read. It offers some interesting historical examples in a buildup to his main conclusion: Index funds are probably the best way to hold securities for the long term. Both Malkiel and Krugman make Princeton look good....more info
One of the time-tested financial classics This is one of the classics -- a must read for someone new or experienced at investing. After reading this book, you will have a much better understanding of some of the "randomness" that plays into the markets and sneer at advisers who claim they are smarter than the market....more info
A classic that should be on the bookself of every investor This is the updated and expanded 9th edition of a classic investment book that everyone should read once. Although the topics visited are rather extensive, Dr. Malkiel has a very fluid writing style and reading is easy.
Dr. Malkiel believes in a weak form of efficient market hypothesis in that although there might be inefficiencies at times, consistently finding and taking advantage of these are rather difficult after expenses and taxes even for professional money managers and many fail and ruin their investment in the pursuit of beating the market on the long term. Dr. Malkiel suggested investing in broad market (i.e. index fund) in the first edition before first "retail" index fund became available from Vanguard.
The book begins with a brief review of two valuation models: firm foundation valuation and castles in the air valuation. The next couple of chapters are about market manias and bubbles from ancient times to most recent dot com bubble and points to valuation changes and irrational investor behavior. I think every investor could take home something from this review. Those that do not know the history is bound to make the same costly mistakes.
Dr. Malkiel than examines technical analysis and fundemental analysis and market timing strategies and their shortcomings. He associates the technical analysis to astrology and how different securities analyts/researchers using the same fundemental anaysis end up with completely different valuations.
The new chapter on behavioral finance is a must read review of irrational investor behavior and show how investors could be their own worst enemy.
Rest of the book is a useful review of how an investor could construct a reliable portfolio considering risk, diversification and investment products such as individual stocks, mutual funds etc. Several model asset allocations are also available. While I found this section useful, for an investor looking for more specific guidance on portfolio construction, I would like to point to another book, The Four Pillars of Investing: Lessons for Building a Winning Portfolio (Hardcover), for futher reading.
Other investment books I recommend:
The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Hardcover)
Capital Ideas: The Improbable Origins of Modern Wall Street (Paperback)...more info
Extraordinarily clear and insightful financial information The Random Walk was a tremendous help in figuring out what to do as I take over my portfolio from my former paid investment advisor. What is perhaps most helpful is that many of the answers provided in the book are simple and straightforward solutions to complex issues. I enter retirement much more confident of how to manage my resources effectively while avoiding many of the financial errors I've made in the past....more info
Should Have Listened Fantastic Book - full of common sense and ultmate truths. Read it in October 2007 when it was screaming at me "the market is in a bubble, get out!!" - unfortunately I listened but didnt act. Great book...more info
Whats New in the Random Walk Dr. Malkiel continues his thesis that the market is efficient and it's hard to beat the indexes. Unfortunately the indexes themselves became the object of speculation in the 1990's . They were no longer the efficient or related to historic averages.
The major new addition is his excellent review of behavioral finance advances.
This continues to be a "must read" book. It is readable, understandable and a pleasure to read. Highly recommended....more info
Excellent, must read for every investor This is a classic book, first published in 1973. The 9th edition just came out this year. Every investor, whether you believe in market efficiency or not, should read this book at least once. This book does a very good job reconciling between market efficiency and perceived inefficiencies such as bubbles at different times. The author believes in a weak form of efficient market theory. Simply put, the market may not be perfectly efficient at all times, but it's efficient enough to make it very difficult and costly trying to beat it. In the end, an investor is better off holding a market index fund that invests in everything under the sun. It's not worth the cost and effort trying to find the undervalued stocks or high-growth mutual funds.
The book begins with two basic stock valuation models -- Firm Foundations and Castles in the Air. It goes on with a review of bubbles and manias throughout history, from more ancient history -- tulip craze in the Netherlands, the South Sea bubble in England, the 1929 Great Crash in the U.S. -- to the stock market anomalies from the 1960s, 1970s, all the way to the late 1990s dot com bubble. The book then introduces two basic camps of stock valuation analysis: Technical Analysis and Fundamental Analysis. It shows how both Technical Analysis and Fundamental Analysis fail to identify outstanding investment opportunities more than what an efficient market already provides. Not that you can't make money with Technical Analysis and/or Fundamental Analysis, but you can't make more money than what you already can with investing in a market index fund.
The chapter on behavioral finance is new for the 9th edition. It reviews how investors often become their own worst enemy when it comes to investing. The book "Why Smart People Make Big Money Mistakes And How To Correct Them" (ISBN 0684859386) covers this area in more details.
The final section of this book is the practical part. It gives practical advice on insurance, tax deferred accounts, saving for college, different vehicles for cash reserves, bonds, real estate, and stock mutual funds. Finally the book lists specific portfolio and fund recommendations for people in different stages of their lives.
Overall, this is a great book, a must read for every investor. It is however a little long and it requires some patience because it explains everything in details. If you want to cut to the chase and prefer a cookbook approach, I recommend the shorter book "The Random Walk Guide to Investing" (ISBN 039332639X) by the same author. The basic premise is the same in both books. The shorter "The Random Walk Guide to Investing" condenses everything into 3 basic points and 10 rules. It is about 200 pages long. The full book "A Random Walk Down Wall Street" is over 400 pages....more info
So informative I'm a much better investor having read this book. It really explains a lot, for the novice to the experienced. Insights on stocks, bonds, creating a diversified portfolio, etc. Does a good job breaking down difficult concepts into (relatively) easy to understand descriptions. Some material is more dense and some of the writing seems repetitive at times but on the whole it's spot on, just what you need to be an informed investor....more info
Kindle edition is quite poor The book is otherwise fabulous, but you should steer clear of the Kindle version. The Kindle handles charts poorly, and this book has a lot of them. Some are manageable, but many others contain small text that is so blurry that it might as well be written in Arabic. Quite honestly, it is not entirely clear to me how Amazon gets away with selling this item. The Kindle is great, but Amazon absolutely should not sell books that cannot actually be read on it. ...more info
good, fun read, with lots of valuable insight. i'm a beginner in the field of personal investment and have been looking for a book to help me understand the basics of investment. i have found that in 'random walk'. it's fun to read as well as a well researched book. i am hoping it'll help me make some money :). ...more info
Latter editions refute is own argument 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....more info
An interesting random walk... This book helps to understand how the shares market works and its history.
I think it may interest all people who wants to improve his knowleadge in
A surprisingly light read while still very informative Burton Malkiel's A Random Walk Down Wall Street is well known to be one of the modern classics on stock investing. I was already aware of the premise behind the book - the stock market is pretty efficient and most everyone is wasting their time trying to find inefficiencies to exploit - but I was interested in finding out what information inside could really help me as an individual, both as an investor and as a person interested in improving my personal finances. Here's what I found.
Chapter 1: Firm Foundations and Castles in the Air
The book starts off by defining two basic investment ideologies, the firm foundation theory and the "castle in the air" theory. The firm foundation theory basically says that you should invest based on the actual real value of what you're investing in; for example, if you buy a stock of Coke, it should be based on what the value of the Coca-Cola Corporation is. The "castle in the air" theory basically says that you should invest in response to what the crowds are doing and that you can make more money by riding the waves of people who are either following trends or trying to invest based on a firm foundation. Which one is right? The truth is that they both are, but at different times.
Chapter 2: The Madness of Crowds
This chapter is quite entertaining: it discusses financial "crazes" throughout history, including my personal favorite craze of all, tulipomania. In all three examples (tulipomania, the South Sea bubble, and the Wall Street crash of 1929), a market grew like gangbusters until everything was overvalued, then the values rapidly returned to normal. Graphs of prices in all three examples bear this out; within a year or two of the end of the craze, the prices had returned to roughly the same value as they were before the big run-up.
Chapter 3: Stock Valuation from the Sixties through the Nineties
Even more amusing, Malkiel continues this theme of markets that go crazy and then level off again by using several examples of cross-sections of the stock market where this occurred throughout the last fifty years. I was aware of the overvaluation of food stocks in the 1980s, for example, but to see that it has just repeated over and over again is an eye-opener. Take the Nifty Fifty from the early 1970s - people were basically speculating in blue chips, and by the end of the decade, the speculation had gone away and the stocks returned to normal blue chip levels.
Chapter 4: The Biggest Bubble of All: Surfing on the Internet
This all of course leads to the dot-com boom of the late 1990s and the bust in the early 2000s. Malkiel basically argues that this huge bubble was the result of a confluence of the same bubbles as before, all working in concert: the IPO mania that fueled the early 1960s stock market, the "smoke and mirrors" businesses of the South Sea bubble, and the chasing of future efficiencies that happened in the 1850s with railroad stocks all happened again with the dot-com businesses. And, again, it peaked and crashed and everything returned to roughly as they were before. Coincidence? Malkiel's main point in the whole book is that it's not a coincidence. Markets are efficient and time and time again, when inefficiencies occur, it won't take long for the market to weed them out.
Chapter 5: Technical and Fundamental Analysis
Given this central idea of market efficiency that's been pounded in with dozens of examples, Malkiel moves on to look at the two most common forms of analysis that occur on Wall Street: technical analysis and fundamental analysis. Technical analysis is the study of the behavior of prices on the market, using past performance to speculate on future performance, often using complex charts and trend lines. On the other hand, fundamental analysis revolves around analyzing the health of a business by carefully dissecting its financial statements, the market the business competes in, and its competitors. This chapter mostly serves as a detailed introduction to both, though it's already clear that Malkiel has somewhat more respect for fundamental analysis than technical analysis.
Chapter 6: Technical Analysis and the Random-Walk Theory
This chapter is basically a complete decimation of technical analysis; there's no other way to really put it. Perhaps the most devastating part is when he compares the stock market to the average length of a hemline in women's fashion and finds a correlation. In other words, technical analysis spends all of its time looking for correlations - but most of these correlations are spurious at best. By spending all of your time looking at charts, you're essentially cutting yourself off from a broader picture, making the spurious correlations even worse.
Chapter 7: How Good Is Fundamental Analysis?
Malkiel has at least some respect for fundamental analysis because it is based on foundational logic and is open to accepting wide varieties of data. However, he finds fundamental analysis to be deeply flawed as well. There are many reasons why fundamental analysis can be completely off base: random events (like 9/11), dubious financial data from companies (like Enron), human failings (emotional attachments and incompetence), the loss of good analysts to better positions, and so on. Basically, Malkiel concludes that professional analysts may have a slight leg up on individual investors, but this is mostly due to having more ready access to information and other materials and the advantage is minimal.
Chapter 8: A New Walking Shoe: Modern Portfolio Theory
From there, we move on to portfolio theory, which is basically the idea that people should have a diverse selection of investments and that these investments should maximize the rewards while minimizing the risk. Malkiel basically argues that it doesn't matter how much you diversify your stocks (and other assets), you are still exposed to some risk. In general, he has some respect for modern portfolio theory, but he goes on in the next chapter to point out why minimizing risk isn't always the best strategy.
Chapter 9: Reaping Reward By Increasing Risk
This was easily the most complicated chapter in the book and left me taking some lengthy breaks in the middle to digest the information. This chapter basically takes the ideas from the previous chapter and introduces a new factor: beta. Basically, beta is a number that expresses how closely an individual stock matches the behavior of the overall stock market in the past. Thus, in theory, stocks with a high beta should jump like crazy during a bull market and then dive like Greg Louganis during a downturn. With a very wide scope, this is true, but in specifics, it rarely turns out to be highly accurate.
Chapter 10: Behavioral Finance
This chapter takes a close look at behavioral finance, which applies human cognitive and emotional biases to their investment choices and thus how these biases affect overall markets. From behavioral finance, Malkiel concludes that the only parts that really work are the ones that are common sense: don't invest long term in what's hot right now, don't overtrade, and only sell stocks that are losers.
Chapter 11: Potshots at the Efficient-Market Theory and Why They Miss
Here, Malkiel walks through a series of criticisms of the overall idea of the book, which is that the market is generally very efficient and always reverts to the mean. He starts off by discarding some poor arguments and gradually moves onto better and better arguments, ending with evaluating Benjamin Graham's idea that one should identify and invest in value stocks for the long term. He easily deconstructs most of them and only has significant trouble with Graham's argument. I felt he slightly missed the boat on what Graham has to say, which is that value stocks will always have value. Malkiel points out that over a long period, both growth and value stocks do match up with the overall market, but value stocks do not have the monstrous dips that growth stocks have.
Chapter 12: A Fitness Manual for Random Walkers
This chapter is rather ordinary, as it is a basic chapter on how to build a healthy investment foundation, similar to ones that appear in most investment books. Get an emergency fund, make sure you're well insured, put as much investment as you can into accounts that are tax-sheltered (like Roth IRAs and 401(k)s), and so on - standard personal finance advice. He does strongly encourage home ownership, though. As for the question of what exactly to invest in, the next two chapters handle that.
Chapter 13: Handicapping the Financial Race: A Primer in Understanding and Projecting Returns from Stocks and Bonds
Ever heard the phrase "past performance is no guarantee of future results"? That's what this chapter is about: you can only use past performance as a very, very broad indicator of the future. In short, Malkiel believes that over a very long period, stocks will beat bonds and inflation, but with any period shorter than a decade, it's basically random and it's all about the risk you can stomach.
Chapter 14: A Life-Cycle Guide to Investing
Given that, the next chapter is basically a detailed guide on how to invest for yourself. In short, when your goal is more than a decade off, you should be heavily into stocks for the long haul, but if your goal is in the shorter term, you should be widely diversified, tending towards investments with lower risk (bonds and cash) as the big day approaches. In other words, Malkiel believes that investing in a target retirement fund is a really good idea.
Chapter 15: Three Giant Steps Down Wall Street
The book concludes with some more specific investment tips. In short, if you don't have the time to micromanage things, invest in an index fund. If you want to chase individual stocks, minimize your trading, only buy stocks that have numbers that are reasonable, and look for ones that have stories upon which people can build the "castles in the sky" mentioned in the first chapter. As for other options, like managed funds? He basically says no, or gives a very hesitant yes with a ton of caveats.
*Buy Or Don't Buy?*
We know one thing for sure: there's a ton of information packed away in this book concerning how the stock market - or any market - works. Most of the book focuses on different ways of analyzing the market to find an edge - and concludes that they're largely junk; the end of the book takes what was learned from this and applies it to investing in general.
This might sound really weighty, but it's not. This book was very easy to read, much easier than I expected before I opened the cover. There's a solid sense of humor behind it, nestled in with all the information, and the information itself is presented in a way that's easily digestible.
If you have any interest in how the stock market works, you should definitely read A Random Walk Down Wall Street. It gives a very critical look at what most people are saying about the stock market - and why a lot of it is potentially rubbish. It also clues you in on how to invest if you take that view of the world.
Of course, there are many other perspectives on the market, and the truth is that the stock market can be exploited by individuals, but that exploitation requires a lot of work, work that is simply not feasible for most people (or even for most investment professionals). While I recommend buying this book, I also recommend pairing it with a solid book on individual stock investing to get another perspective. Taking both viewpoints together will give you a very good understanding of how Wall Street - and pretty much any market - really works, and how you can either try to beat it or ride with it....more info
Best book to learn how markets work and act. This is great to have in your library to know the intimate working of the various markets and how they came to be. You can't invest in something wisely without knowing how it works!...more info
A very good start I read this in Business School, in the early nineties. Although it does not have the depth or rigor of the real hardcore finance texts I was studying at the time, it was my favorite finance book - maybe because it is so well written or because it make the right blend of theory and practical advice. When it became time to start investing a few years later, I went back to it and was not disappointed.
In time, I found things I disagreed with Malkiel - I did find managers who beat the market consistently and one cannot completely dismiss technical analysis when so many in the market follow it. However, you'd have to mature a lot in the investment world to start to take issue with his ideas. For beginners, just eat it up with your vegetables!...more info
A random Walk Down Main Street Would have give it 5 stars,except for the fact that they did not return my e-mail, when I had a question...more info
Not what I imagined 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!...more info
A convincingly definitive treatise on a hotly debated topic. This book lives up to its classic billing by delivering a rich array of data to support the authors arguments in an engrossing and entertaining style. The importance of really understanding the relevance of randomness to market action cannot be overemphasized. I truly appreciate the clarity and simplicity that this book has brought to my investing efforts....more info
Great book As a novice to finance, I found this book both educational and entertaining. Highly recommended!...more info
Pearls among the swines The book is a classic and it's main point about the investment value of index funds is superb. And a must know. However the 5 'rules' for 'a rational investor' are very mediocre and mostly plain wrong. For instance rule #2 'a rational investor should be willing to pay a higher price for a share, other things being equal, the larger the proportion of a company's earnings that is paid out in cash dividends' is a common mistake. First paying out dividend historically carried (and in some countries still carries) a tax disadvantage. Second if a company is able to reinvest its free cash-flow in business opportunities providing high returns on investment (at least somewhat above the cost of capital) it is better if the company does not pay a dividend. For the reasoning behind this read Warren Buffett and to see teh truth of it look at the share performance of Berkshire Hathaway (a company that does not pay out a dividend since Warren still thinks he can invest cash at higher returns then the cost of capital).
Then later we get a lot of cicular reasoning. To prove that professionals are no better then the market in general it is argued that as a group they do not outperform the market. Now the problem with that reasoning is that although the professinals do not own all the shares they do 90% of the trading (p.52). So they are the market (or 90% of it). They are the average! So of course the average cannot beat the average. We don't need any reasoning nor any random walk or any other theory to see that. The average will simply never do better then average and including fees for the professionals must necessarily do worse then low-cost index funds. Wether the market is efficient or not, this is always true.
Malkiel misses that point completely and just loves hanging the professionals out to dry. At the same time he also forgets to mention most of the time (except om p.161) that professional portfolio managers/analysts are not hired to outperform the market but to provide the backing behind marketing claims that they will try very hard to do so. Most are hired to sell mutual funds or keep clients, not to help them outperform.
All in all he makes some excellent points but for the uninformed reader it is very hard to distinguish between truth and nonsense in this book....more info
Old Fools Other than the beginning of the book have couple stories he collected - tulips maniac, 1909, Southsea bubble. The rest of the book is to explain/justify Efficient Market Theory. Let see what world 2nd richest man Warren Buffett said about EMT.
"I'll be a bump in the street if EMT is true."
"Observing correctly that the market was frequently efficient, [...] went on to conclude incorrectly that it was always efficient. The difference between these propositions is night and day."
Investing is to pay for something that have high guarantee of returning of principle with satisfying return than the risk free vehicles.
Information get from Makiel is harmful for your investment career. Learn it from the person that walk the talk - Oracle of Omaha : Warren Buffett. By the way, Makiel doesn't said much about Warren Buffett, I think because all the Graham & Buffett followers (which are mostly among the best fund managers) can easily invalidate all his books and wrong concept that he spent his life learning, these people don't exists in his world (or bookS).
For beginner, borrow the book from library 'understand' what he is trying to tell you and then study Buffett work and Graham's book - Intelligent Investor, understand value investing, so you can figure why the market is so 'crazy' and how you can take advantage of it rather participate in it.
Basically it's because you have thousands of MBA that were fed the EMT potions in school and throw in to the mutual funds company and by the way they manage billions of dollars.
Mean spirited Some of the arguments in this book don't make much sense. It does give you an interesting historical perspective, but the author chooses poor examples to prove his points. I found a lot of the "jokes" to be mean spirited, sexist, and just not very funny....more info
READ this book - Malkiel is BRILLIANT, INSIGHTFUL, and CHALLENGES your prejudices - What more do you want????
I want to give you ACTIONABLE INFORMATION that can help you today with your investments currently. I am familiar with the arguments both pro, and con against the Random Walk hypothesis. Others have written extensively with eloquence and in great depth whether it is correct or wrong, and have explained it thoroughly in great detail.
The essence of the theory and this book is that PEOPLE SIMPLY CANNOT BEAT THE MARKET over time. You are better off INDEXING TO THE MARKET. There is a plethora of ways for you to do this. Read any of the wonderful books written by John Bogle, the MASTER of the Index Fund concept. He is a wonderful writer also. Try his "Common Sense on Mutual Funds".
Indexing is highly valuable because you essentially do as well as the market does over time - NO BETTER AND NO WORSE. We also know that the vast majority of professionally managed money performs poorly versus the INDEX. There is no argument on this point. I have observed that for the vast majority of investors today, they are better off indexing to the market.
Now having said that, and being in the industry, I have seen too many people BLOW AWAY the index rate of return to accept the Efficient Market Theory. I have watched close up on a personal level as a partner of a major Wall Street firm, Buffett, John Templeton, Larry Tisch, Andre Meyer (the man behind Lazard), Peter Lynch, Leon Levy (the genius at Oppenheimer), Jack Dreyfus, Ace Greenberg (Bear Stearns), Bob Wilson (the best short artist I have ever known), Charlie Allen (Allen and Company), Michael Steinhart, Jimmy Rogers, and George Soros literally year after year be right, and amass hundreds of millions of dollars, and sometimes billions for themselves by their brilliance, patience, and being ahead of the crowd.
What did they have in common? They had a unique capacity to cut to the chase in an investment. They were smarter than most investors, yes, but some of them weren't the geniuses that others believe them to be. They had clarity to their thinking. It could be emulated, studied, and replicated.
Without question, they drilled down deeper into an investment than 99% of their fellow investors. What they knew, they knew with certainty. They might be early, but they were seldom wrong. Do you think Buffett has made MANY poor investments? He's made a few, but not many.
John Templeton, who is right up there with Buffett as an investor, told me one day, "Rich, investments are just common sense." We were sitting in a meeting on a Saturday, in a hotel years ago, and I handed him a coke, it was the kind with the newly developed twist off cap at the time.
He asked for a bottle opener. I said, "John, you twist it off". He didn't believe me at first. When he saw how it worked, he took a magnifying glass out of his pocket and looked at the cap, and then what he said was profound. "I guess we could call Coca Cola up on Monday, and see who makes these things. Probably a million people in America opened coke bottles that day, oblivious to investment merits of a bottle-cap. What I am illustrating is how you make ALPHA, or the EXTRAORDINARY RETURNS we all so sorely want? Forgive me for the stories, but they are priceless.
The MASTERS are not LUCKY INVESTORS. You don't create a lifetime of success FIVE STANDARD DEVIATIONS FROM THE MEAN, and still believe in RANDOM WALK. In a room with Warren Buffett, he would tell you he doesn't believe in random walk.
Let me leave you with one way that all the MASTERS have become rich from my observations of them close up. Every one of them takes advantage of compounding, while everyone else is working with simple arithmetic returns. You already know that straight arithmetic returns cannot compare to an exponential return. Buffett goes out far enough in his investments - he would tell you forever, to derive a compounding rate of return.
You must find investments that will throw off a 15% to 20% rate of return and ride those investments for decades. When COMPOUNDING kicks in after several doubles, you start to make a killing, while ever one else is looking for that simple return. First however, you must pick companies that will last. This is why Buffett never, ever buys a technology stock. He can't go out far enough with it. So you ask me, "Great Rich, how do you find those"?
They are out there. You won't find them in the tech stocks, which usually collapse after about a seven year run according to the Harvard studies. You need to find the boring companies that just keep printing money consistently in a predictable fashion. Proctor & Gamble has been an interesting example for decades. A billion in sales in the 1970's, now up to about $70 plus billion. I can make a list from my head of a 100 boring companies that are up thousands of percent in the last several decades. Peter Lynch is a 100 percent right when he says, "Over time, stock value tracks earnings."
If you want Random Walk, you execute by buying INDEX FUNDS. From the early 1980's until now the Dow Jones alone is up about 1500%. Very few managed portfolios match that return. If you think however that you want to go after the elusive ALPHA return, than go for it. Study the MASTERS; there is nothing new under the sun. What worked 2 centuries ago for the Rothschild's, or 80 years ago for Bernard Baruch, can still have meaning today and good luck on your journey.
Excellent book I've read several of the older editions. Not too much different but always worth reminding oneself of how most money managers underperform their respective Index.
Should be required reading for every individual investor....before they invest in the next hot thing....more info
The standard This book is "the standard" as an introduction to anyone who is not well-versed in finance, as well as many students who think they are. While it relies on historical data and analysis as its driving force, Prof. Malkiel does a great job explaining what the numbers mean using simple terminology.