Customer Reviews

A Random Walk Down Wall Street

5 star:		(78)
4 star:		(23)
3 star:		(12)
2 star:		(7)
1 star:		(16)

 

 

It's interesting how with each new edition, the efficiant market theory slowly morphs into value and growth investing. When the book first came out, Malkiel wrote that a monkey throwing darts can beat professional stock pickers. Well, for a couple of years the Wall Street Journal ran a series pitting stock pros against a monkey. From what I remember the monkey lost. I also remember that Malkiel ran a mutual fund which wasn't all too hot (he probably used the Wall Street Journal's monkey!). Now Malkiel recommends loading up on index funds, which by the way are loaded with blue chip stocks and are not at all chosen randomly. Save your money and buy Graham's Intelligent Investor, The Essays of Warren Buffett, and Fisher's Common Stocks and Uncommon Profits

This book is the ideal piece of folly of academic generalization. Mr Malkiel is no trader himself. Thus he ignore the psychological aspect of trading. I am wholly qualified to write this critics because I am a full time trader by myself with an annual compound growth for 25% (for the past 3 years in stocks and futures). So, if you want to promote an efficent market theory, please prove it first. For disproving the thesis, according the Karl Popper, you just need to find one instance to prove that the thesis is wrong. And all of you know that around us there are bundles of successful trader, such as Warren Buffett, Soros, Livermore, Gann , O'Neil, Darvas, Michael Marcus, Stanley Kroll (the one I most appreciated among living) and so on. If you want an academic discussion of the subject of investment, trading is not for you. If you believe that your position is the market is random, if you think that Warren Buffett's analytical skill is no different than a monkey, then you may go and buy this book. The only book I give it a one star rating is becasuse I think that it has acquainted me with the mainstream academic belief of the market. Hope that there will continue there belief and make us a even profitable class.

How interesting that an efficient market theory advocates' advice only helps create market inefficiencies! By urging everyone to buy into passively-managed index funds, Malkiel only helps spur widespread indiscriminate capital allocation by America's investors. If the American public, en masse, turned to index funds, it would create an overpriced market in general through the massive pouring of investor capital into arbitrary lists of stocks (like the Dow, the S&P and the Russell 2000).

There is a fundamental reason people invest: to be paid for delaying their gratification. Why does Malkiel only briefly discuss the work of Williams, Fisher and Graham, and not even touch upon the true champion of fundamental analysis, Warren Buffett? The long-term strategy they proposed and used (all are among the most successful investors of all time; Graham and pupil Buffett rank 4th and 1st, respectively) has produced the most consistent and profitable returns of any method ever.

Malkiel's work is not completely without merits (he does debunk the authority of high-profile "analysts" on Wall St. whose aim is not to give you good advice, but to produce profits from selling something to the investor), but the core of his work, Efficient Market Theory, doesn't hold water, especially in light of the spectacular results fundamental analysis has provided generations of investors. Malkiel misses the boat by not impressing upon the reader the fact that stocks are shares of a company; by buying them, you become an owner. Burton just sees them as scraps of paper. Go ahead, take a random walk. You'll do just as well as the average investor. But the whole crux of investing is being better than average. Burton proves his professorship to be a misnomer by urging millions of investors to pursue mediocrity.

Forget this version. Instead, go to the library and check out the 1996 version, which at least discusses 'pork bellies' (derrivatives and option trading), if too little. Instead of taking the cue from the collapse (10/98) of Long Term Capital Management and producing something new and more interesting, Malkiel keeps on giving us warmed over versions of the same old EMH (efficient market hypothesis), which many researchers by now know is wrong (Fisher Black & Co. knew it in the eighties). Malkiel's beloved 'back of the envelope' calculation showing large how stock price changes can be caused by small interest rate changes is also irrelevant, because it assumes that dividends determine stock prices, and everyone in the market knows that dividends haven't mattered in the last ten years, at least. The 1996 edition (3 stars) is informative. There, you can learn what beta is, and the example discussed of using covered calls as a conservative strategy is also nice.

I FIRST READ THIS BOOK IN COLLEGE DURING THE MID 70'S. I WAS AMAZED THAT SUCH GARBAGE COULD BE SOLD TO PEOPLE, SIMPLY BECAUSE OF TWO FACTORS; THE ACADEMIC CREDENTIALS OF THE AUTHOR, AND THE COMPLEXITY OF THE SUBJECT MATTER. IF YOU READ THIS BOOK, YOU MAY BE DENYING YOURSELF THE OPPORTUNITY TO LEARN SOME OF THE MOST VALUABLE KNOWLEDGE IN THE WORLD TODAY!

It's tough to say anything nice about an author who wrote a book 20 years ago with a false premise who has updated the book without revising the fundamental thrust. The stock market, and other financial markets, are not random: they are chaotic. The difference is significant and profitable. I know, both theoretically (schooled as a mathematician) and practically (trading successfully, as I do, is impossible in a negative sum game, which the market is, unless the market is chaotic rather than random).

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.

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.

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. [An earlier reviewer said that this book was geared towards women. I don't know how he infered this!] 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.

As a technical trader all i can say is that i hope Lion and Burton can convince as many people as possible that technical analysis is bunk and voo doo! please convince the whole world and thank you for your service. the less people that use it the better for us technicians! after all if other companies knew the secret of making Coke, the value of Coke would disappear! all i can say to the people that think TA is voo doo is have you tried it? i mean REALLY tried it. like take a solid year and look over charts everyday to see if certain patterns arise. i doubt it. it's funny how people who trash TA including fundamentalist have never given TA a shot yet technicians won't trash other styles. i believe fundamental analysis is valid over longer terms. TA works better in shorter time frames. Charts are meant as a way to measure investor psychology in particular fear and greed. TA is not predective!!! nothing is. TA is only meant to put the odds in your favor, to give you and edge like counting cards in black jack. on last thought, if prices are random why do bubbles and manias keep occuring and if prices are so random why is the outcome of a bubble (a crash) so predictable? it's because during certain times greed takes over to push prices higher and then after awhile that greed wains and fear takes over and then prices fall. simple as that. to say prices move randomly it to totally take out the human factor involved in Market and that is just plain naive. but as i said earlier if you believe that fine, makes my life easier.

ps
long term capital failed not because their arbitrage model was flawed (for awhile it worked and made tons of money) but because the partners were risking too much so when a trade went against them they were losing tons and it got away from them. Pride was their ultimate downfall and the downfall of any trader. you gotta cut your losses.