A Random Walk Down Wall Street: The Best Investment Advice for the New Century

by Burton G. Malkiel

Book Overview

Skilled at puncturing financial bubbles and other delusions of the Wall Street crowd, Burton Malkiel shows why a broad portfolio of stocks selected at random will match the performance of one carefully chosen by experts. Taking a shrewd look at the high-tech boom and its aftermath, Malkiel shows how to maximize gains and minimize losses in this era of electronic brokers, virtual gurus, and flashy investment vehicles. Learn how to analyze the potential...

• Format: Paperback
• Language: English
• ISBN: 0393320405
• ISBN13: 9780393320404
• Release Date: January 1999
• Publisher: W. W. Norton & Company
• Length: 464 Pages
• Weight: 1.15 lbs.
• Dimensions: 1.0" x 5.5" x 8.2"

Customer Reviews

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. This edition is updated with a whole section on the internet bubble and other scandals. However, it maintains the same principle as all other editions; and Malkiel's advice remains that we should diversify broadly. "A Random Walk Down Wall Street" should be in every family's library. Vincent Poirier, Dublin

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.

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.

All-around sound advice

Mr. Malkiel provides an outstanding all-in-one stock book for the educated but non-technical investor. He includes overviews of the financial, economic and psychological foundations for stock markets, as well as entertaining summaries of the history of stock markets in the world and in the U.S. Mr. Malkiel takes a sensible, long-term approach to investing with stocks and bonds, at the same time pouring cold water on various market theories. He approvingly quotes the phrase "the stock market is like a casino in which the odds are rigged in favor of the player" which is probably the best summing-up I've ever encountered when thinking about stocks. Some of his more salient and direct advice includes these gems: * "A simple 'buy-and-hold' strategy typically makes as much or more money than technical strategies" (p 151). * "No technical scheme whatever could work for any length of time and ...even if they did work, the schemes would be bound to destroy themselves" (p 167). * Regularities in stock market movements are arbitraged away over time; whoever spots such a regularity would not tell everyone else, but instead would keep it to him- or herself to get rich (p 168). * Many analysts are incompetent or are compromised by institutional conflicts of interest (pp 181, 183). * "The evidence from several studies is remarkably uniform. Investors have done no better with the average mutual fund than they could have done by purchasing and holding an unmanaged broad stock index" (p 187). * Don't ignore small cap companies: "smaller firms tend to have higher rates of return" (p 239). * Investors should look for stocks with relatively low P/E ratios and low values relative to their book values (pp 239, 261). * The only market-timing strategy that makes any empirical sense is to purchase stocks that have had relatively poor recent performance (p 257). * The stock market goes through manias but is fundamentally logical (p 258). * Your tolerance for risk should be judged by how well you can sleep at night with your portfolio (p 280). * Zero coupon bonds can be a good investment if the tax aspects are adequately addressed (p 299). * "I recommend low-expense bond index funds" (p 300). * "I now believe that if an investor is to buy one U.S. index fund, the best general U.S. index to emulate is the broader Wilshire 5,000-Stock Index, not the S & P 500" (p 360).

A Most Misunderstood Book

I just finished reading the '95 edition and am looking forward to reading the updated version. I would highly recommend this book to any beginning investor (spare me Suze Orman!), or to experience investors who may have dismissed it based on mainstream media characterizations.After hearing so much about this book over the years, I was surprised after reading it how misunderstood it is.As it turns out, Malkeil is a "weak" random walker by his own definition, and sometimes mildly mocks the "strong" random walkers who claim all relevent information is reflected in stock prices at all times. I had always dismissed this book as an absurdity based on the understanding that it espouses the strong approach. It most assuredly does not.He begins the book talking about historic market bubbles and their eventual collapses as examples of ineffecient markets. At the close he describes his inventments in discounted closed end funds as an example of exploiting a market inefficiency.His thesis is that inefficiencies and insider information can be exploited, but such opportunities are difficult to identify, may be inaccessible to the average investor, and do not persist. So in the absence of this information, how is one to invest over the long term? Mainstream media latches onto the stock indexing approach as though it was the sole method espoused by the author. Although Malkiel presents a compelling case for indexing, and discredits technical analysis outright, his approach is hardly dogmatic and often nuanced.Other noteable misunderstandings about this book are too numerous to mention here; often purchased but rarely read it seems.