[.ca] Random Walk Down Wall Street (ISBN 0393320405)

From Amazon.com:
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

Spurious Monkey Business:
Very few fund managers, brokers or money managers can beat the market. OK, that is factual and common knowledge. Yet, the vast majority of investors entrust their stock portfolios with these poorly performing professionals instead of parking all of their investment capital in no- load index funds or ETFs. Is the market then truly efficient or are their millions of sato- masochistic investors out there that want to underperform? In 1999, the Nasdaq market leaders traded for well over 100x p/e. It defied logic and a few shorts would have been "efficient." The market continued to rocket upwards until March, 2000 and shorts would have been death to you in 1999. A share of some company breaks out of a trading range and moves up 5% in value in 10 minutes on no news or fundamental change. This type of thing still happens. How can a market be truly efficient when there is ingrained stupidity such high levels? Consider the handicap mutual funds are strapped with: They must be at least 70% invested on the long side at all times regardless of how overvalued the equity markets are. That means mutual funds will be sloshing money in defensive industry stocks such as casinos and bottlers during a market melt down. Conversely, it means "value" stocks will be frequently trading for less than book value during boom times. In an efficient system, you have real checks and balances insuring stock prices on an equal footing with intrinsic value and not cosmetic tomfoolery. How does investor psychology come into play? Human psychology is not efficient but it is sometimes predictable. I'm betting that whatever look Brittney wears in her next video and whatever is worn on the runways of Milan will be adopted within a few months by the hordes. The darts won't tell you that. In 1983, a Members Only jacket and a pair of designer parachute pants would set you back maybe $150. Today, you can only find these items in a thrift store for considerably less. The lesson is that in the short term, there are all kinds of irrational trends. Over a long time span, a regression to the mean will filter out lots of follies only to be replaced by some other ridiculous fads and a few long lasting good ideas. Everybody knows that garish haute couture has a higher profit margin than the common t- shirt. I'd rather be hawking the haute couture. There is marked inefficiency in the markets over longer time frames also. Check out the valuations on Coke and the consumer staples over the last several years and compare them with historical norms. Many stocks seem to be permanantly overvalued. And what is this fascination with historical valuations? Many investment managers are in awe of the historical valuations as if it were definitive. Frankly, the variables have changed over time and comparisons with history make less sense today. The entire market is based on stupidity, manic emotion, misinformation and knee jerk responses. I could get into wirehouse sales tactics and conflicts of interest but I will spare you. That is not to say that it can be figured out. Oh, and if the market were efficient it would learn from its mistakes. There were bucket shops in 1890, and there are bucket shops today. At the turn of the century, automotive stocks were doubling seemingly overnight only to later crash and burn. Fuel cell stocks were the rage a couple of years ago. Most fuel cell stocks are now trading for a fraction of what their highs were. There is nothing new under the sun.

Solid advice for funding your life:
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.

Packed With Knowledge!:
The first edition of Bernard Malkiel's A Random Walk Down Wall Street appeared in 1973, a few years after the twentieth century's first big computer technology bubble, the go-go era, popped. This, the newest and eighth edition, appears after the popping of the dot.com bubble, the last of the twentieth century's great computer technology bubbles. Investors burned in the first bubble could have been excused; after all, they didn't have Malkiel's book. But it's astounding how avidly Internet speculators threw aside all that Malkiel and others had taught them. This book belongs on every investor's bookshelf, and ought to be consulted, or at least touched to the forehead, before any investment decision. Most investment books aren't trustworthy, because their authors are salespeople who are really making a pitch instead of trying to inform you. Malkiel is disinterested. He is a teacher with the intellectual discipline of a true financial economist, and yet he writes as vividly as a good journalist. We recommend this classic: all you need to know about the market is between its covers.

Has Solid Information:
This book has its rough spots, but all in all it's definitely worth the money. This book has a very comprehensive treatment of risk, reward, and diversification, and these alone make it worth reading. I dispute some things that Malkiel says. He seems emotionally attached to the efficient market theory, and no piece of evidence can make him question it. It gets a little annoying to read page after page of examples that clearly show inefficient stock pricing, only to have Malkiel "explain away" the apparent contradiction with the efficient market theory. Throughout the book he also unnecessarily insults practicioners of technical and fundamental analysis, which is probably why there are some emotionally charged negative reviews. \oAn earlier reviewer said that this book was geared towards women. I don't know how he infered this!\c Though Malkiel did not convince me of the validity of the efficient market theory, he did convince me with this book that it is very, very difficult for anyone (professional or independent investor) to consistently beat the market averages. If you can overlook the negatives of this book you will find that there is quite a bit of excellent information.

A Vanguard/Fidelity Fund Promotional in Disguise:
You know you are reading a bad investment book when the author chooses to start his text with the following quote: ýgAn investor with 10,000 dollars at the start of 1969 who invested in the Standard and Poorýfs 500 Stock Index Fund would have had a portfolio worth 327,000 dollars by 2002, assuming that all dividends were reinvested.ýh Professor Malkiel, like so many other writers on the topic of investing, resorts to the use of ridiculous statements to support an argument for whatever investment is being peddled to a largely unsuspecting public. Now, take a minute and examine Professor Malkielýfs ridiculous statement. First, in 1969, the ability to invest in an S & P Stock Index Fund did not exist for the average small investor! Mr. John Bogle, Professor Malkielýfs bosom buddy (and fellow Princetonian), did not offer the index fund concept to the average individual investor until 1973 abouts. Second, given that the advice in this book is slanted towards an audience that is primarily female and in their twenties or early thirties, offering an example of an investment strategy that quite honestly the reader would have had to take advantage of well before the time she was born seems a bit pointless. Third, upon closer inspection of this statement, how would choosing any other year besides 1969, say any other year after 1969, affect the comparison? The more astute among us know that changing the base (either the starting point or the ending point), changes the result. Finally, yes indeed, hindsight is 20/20 as always, and I have to ask, does the Good Professor really think history will repeat itself in exactly the same way? That said, the bookýfs message is not new or original, and simply states that by buying and holding an index fund (or a basket of such funds), investors would not only outperform most of the actively managed mutual funds, they would also avoid expensive transaction costs which eat away at returns. Besides being fundamentally obvious, this approach was first alluded to by Benjamin Graham and David Dodd in their books Security Analysis and the Intelligent Investor. Although the method Professor Malkiel advocates would appear to consign the investor to mediocre returns, what it actually does is turn the small investor into an ill-informed buyer. Professor Malkielýfs ýeadviceýf boils down to the following: buy everything that is available, spread your money thin and far and wide, follow the crowd (as opposed to anticipating the crowd), never sell, and keep buying, no matter whatýc In essence, after 382 pages of somewhat droll, uninspired, and often painful prose, I learned that I should buy a little of everything, cross my fingers, and hope to God that something that I bought goes up. The motivation for this book rests on many faulty assumptions. Professor Malkiel incorrectly assumes that, like most small investors, the informed and intelligent reader will not, after digesting his treatise (or is it screed?), go out and do his or her homework and investigate the claims made in this book. He also assumes that most readers, particularly women, are mystified to the point of stupefaction by the investment scene. Basically, Professor Malkiel believes that every small investor is a stupid know-nothing easily awed by the slick Wall Street Players, and can not possibly hope to out-think and out-perform The Crowd or The Street, and thus should gleefully hand over his retirement funds to the more knowledgeable fund managers at the likes of Vanguard and Fidelity, who we all know have every small investorýfs best interest at heart. I also discovered numerous factual errata throughout the text, such as Professor Malkiel describing the infamous John Law of The Mississippi Scheme fiasco as an Englishman (he was in fact actually a Scotsman). In addition, I found the sexual allusions he liberally sprinkles throughout the text to be very off-putting and thoroughly inappropriate for both the topic and the target audience. And yet, in spite of the many demerits of the text, it has two good points. The first is its adequate treatment of treatment of risk and reward, and second, it does address, albeit in a cursory fashion, all the varied classes of investment, from hard assets like gold, real estate and collectibles, to paper assets such as cash equivalents, stocks and bonds, giving some of the merits and demerits of each. In sum, this book is a watered down version of John Bogleýfs Common Sense on Mutual Funds, and I personally regard the Index Fund Strategy as being analogous to the Shotgun Approach to Investing. As such, those individuals seeking to adopt the index approach or that have adopted the index approach to investing should read this book to keep the faith.