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A Random Walk Down Wall Street: Completely Revised and Updated Edition (平装)
by Burton G. Malkiel
| Category:
Investing, Wall Street, Stock market, Investment guide |
| Market price: ¥ 208.00
MSL price:
¥ 158.00
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MSL rating:
 Good for Gifts |
| MSL Pointer Review:
A classic investment manual and an excellent introduction into academic finance. |
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AllReviews |
1 Total 1 pages 10 items |
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Chicago Tribune (MSL quote), USA
<2006-12-25 00:00>
A classic… has set thousands of investors on straight path since it was first published… Even if you read the book a refresher course is probably in order. |
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Forbes (MSL quote), USA
<2006-12-25 00:00>
Not more than half a dozen really good books about investing have been written in the past fifty years. This one may well be in the classics category. |
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Library Journal (MSL quote), USA
<2006-12-25 00:00>
Why would anyone want to invest in the stock market today? Malkiel (economics, Princeton) was trying to answer that very question when he first published this book in 1973. Over the years, the work has proved to be a hardy perennial among amateur and professional investors alike-and it's gratifying to see it bloom once more, offering ample updated information. Malkiel takes an academic, no-non- sense attitude toward Wall Street, emphasizing a more random approach to stock selection and thereby debunking a lot of the more technical methods people use to decipher the stock market. He advocates sticking to index fund investments, as well as diversifying one's portfolio, frequently reminding the reader that a "buy- and-hold-strategy" has higher returns. Of course, it's only human nature to want to make a killing in the stock market and "throw your money away on short, get-rich- quick speculative binges." But Malkiel argues that this makes no sense, and he dramatically emphasizes his point by examining the various historical investment bubbles and their staggering losses. Malkiel has a somewhat didactic style-he occasionally sounds as if he's shaking his finger at the reader-but his message continues to resonate. |
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Alex Rothenberg (MSL quote), USA
<2006-12-25 00:00>
Burton G. Malkiel's Random Walk, first published over 30 years ago, is now a classic text on investing and is surely worth anyone's time and effort. Simply written, Malkiel conveys the debate over the validity of the efficient market hypothesis with ease and effectiveness; this edition's updated comments on the dot-com craze are insightful and probably worth the price of the book themselves.
While I support the view that fundamental and technical analysis generally offer very little in the way of helpful advice, I believe that Malkiel's view that no investment strategy can beat the market over the long run is, to put it simply, irrefutable. Therein, however, lies its problem.
Suppose, for instance, that I have this remarkable strategy of buying and selling stocks which has earned me consistant long run returns on the market. Of course, if I tell anyone the specifics of this strategy and how wonderful it works, they will want to start using it for themselves. But then my strategy will stop working; the more people use a particular strategy, the harder it is for that strategy to continue work. Malkiel himself notes that if everyone uses the strategy of buying stocks on January 1st and selling them five days later, a simple strategy of buying on December 31st and selling on the 4th will generate consistant, long run returns. But then, if everyone adopts the new strategy, the long run returns vanish!
The key to a successful investing strategy, then, is to keep it secret. Since any strategy published in Malkiel's "Random Walk" is likely to be read and studied by millions, the moment he publishes something that would refute the efficient market hypothesis, the hypothesis is again reconfirmed. Clever devil, that Malkiel.
Other than that, my only problem with Malkiel's book is that he refers to countless articles and studies published in academia, but he leaves the inquiring reader clueless as to where to look for them. A simple "references" section would solve this problem (although it would easily provide further reason to justify publishing a new edition, thus earning Malkiel even more money).
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Rolf Dobelli (MSL quote), Switzerland
<2006-12-25 00:00>
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. |
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Vincent Poirier (MSL quote), Japan
<2006-12-25 00:00>
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.
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Michael Brady (MSL quote), USA
<2006-12-25 00:00>
Malkiel has written an interesting,but flawed,eighth edition of his book. The entire edifice upon which all the editions of this book is based, as well as his recommended stock market investing approach(buy and hold index funds using the S and P 500), is that the probability distributions of stock market price changes over time are normally distributed. None of the editions of this book contain either a Chi-Square test for goodness of fit or any other test for goodness of fit. He appears to have conflated the symmetry of a distribution with the normality of a distribution. Consider the expected value example used by M on pp. 206-208. The distribution presented on page 207, while symmetric, is not normal or approximately normal. The very title of M's book means that he is assuming that stock market price changes are random and that each price change is statistically independent from all previous past price changes. This automatically leads to the assumption of normality based on the assumption that the Law of Large Numbers and the Central Limit Theorem (CLT) hold. The standard normal distribution has a kurtosis (measure of peakedness and/or flatness) of 3 and 99.7% of the area falls within + or-3 standard deviations of the mean. The p. 207 distribution has the kurtosis and thick,long tails of the Cauchy Distribution.The fact that it is approximately symmetrical(ignoring the small skew)does not mean that it is normal.The same assumption of normality occurs in Malkiel's discussions of the calculation of different beta values using the Capital Asset Pricing Model(CAPM) and in his discussions of valuing options using the Black-Scholes equation(pp.420-423). Benoit Mandelbrot has presented massive data analysis over the last 50 years showing that price change data over time, not only in the stock markets,but in all financial markets, is not normal or approximately normally distributed. Mandelbrot has shown that the variances are correlated. This means that the assumptions of random price changes that are statistically independent of each other are not supported. This means that the CLT is not applicable since substantial dependence is occuring. Nowhere in this book does Malkiel attempt to deal with the work of Mandelbrot or the many other researchers in many other countries who have duplicated his results. Malkiel does, of course, mention the work of Shiller (the price variances are too large) and Lo (who challenged a part of Mandelbrot's work unsuccessfully in 1991).
Unfortunately, nowhere does he ever empirically test his data or deal with the problematic nature of the Cauchy distribution. No where does he consider how his analysis would be impacted if the normal distribution is not the correct distribution to apply. He should do so in the nineth edition. The efficient market hypothesis, either strong or weak(Malkiel appears to support a weak version), rests on the applicability of the normal probability distribution.Mandelbrot's challenge should be accepted if the field of financial analysis really believes that it is a scientific enterprise. |
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Shannon Gaw (MSL quote), USA
<2006-12-25 00:00>
Burton Malkiel says the "you need no prior knowledge to follow" his book, but if the reader is not already comfortable with throwing around terms like "yield" and "multiple", they may have a rough start. But while this investor, professional money manager, and professor may not have penned "Finance for Dummies" here, he still has a readable book. Yet, readable doesn't necessarily mean an easy read, either, at nearly 500 pages. Malkiel is the stereotypic academic with the gift of verbosity; his random walk is a long walk. This is the eighth edition and it feels like material was only added - not subtracted - with each version.
The first two-thirds of the book is heavy treatise on the randomness of markets and efficient market theory. He defines stock valuation as either a "Castles in the Air" or a "Firm Foundation" philosophy. The first 100 or so pages discuss the major incidents of market excesses and "the madness of crowds", with a chapter devoted to the Internet bubble, all in the context of the Castles in the Air methodology. While he states that hindsight has proven that Firm Foundation beats Castles, he admits that "standards of value ... are not the fixed and immutable standards that characterize the laws of physics, but rather the more flexible and fickle relationships that are consistent with a marketplace heavily influences by mass psychology."
Malkiel takes on Firm Foundation and compares technical vs. fundamental analysis. He best sums up the theory of technical analysis by saying "with large numbers of technicians predicting the market, there will always be some who have called the last turn or even the last few turns, but none will be consistently accurate." Malkiel doesn't completely dismiss technical analysis; rather, he infers while predicting market psychology produces some useful information, it alone has not overcome its own implied transaction costs to consistently outperform the placebo buy-and-hold strategy.
While Malkiel squarely weighs in on the side of fundamental analysis, he admits "financial forecasting appears to be a science that makes astrology look respectable". Here is where he concedes everything to efficient market theory. "EMT explains why the random walk is possible. It holds that the stock market is so good at adjusting to new information that no one can predict its future course in a superior manner. Because of the actions of the pros, the prices of individual stocks quickly reflect all the news that is available."
Some of the recent investing gurus, such as Phil Towne, condemn Malkiel as the father of efficient market propaganda. Maybe he has diluted a more extreme message over the years and editions, because I felt that after he made the case for EMT, he acknowledged that there are some out there that through PMT and diversification that are beating the market. But he's very clear that this will probably not be you or me.
The last part of his book is an investment guide or at least a more practical application of his investment philosophy. He discussed investment vehicles and disburses advice such as invest in index funds, minimize trading and therefore brokerage costs, look for consistent earnings, etc.
I am glad I read "Random Walk", but I wish there was a Cliffs Notes version. |
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Y. Sageev (MSL quote), USA
<2006-12-25 00:00>
A Random Walk needs to be the first book you read about the stock market.
Malkiel is best known as a proponent of efficient markets - the idea that stocks are correctly valued. If everyone believed that a stock was undervalued or overvalued, investors would act accordingly and en masse to correct the price. This is a fundamental tenet of the stock market that all investors must internalize before they invest. The stock market suffers from the economic version of the Heisenberg Uncertainty Principle - any belief in a given strategy alters the market itself. This is not to say that Malkiel doesn't believe that stocks can at times be incorrectly valued. The point is that one needs knowledge of a given industry to take advantage of it. For example, if you work in the oil industry and understand drilling techniques in great detail, you could exploit this knowledge.
Malkiel goes on to thoroughly destroy the holy grail of Wall Street mavens: technical analysis. This form of analysis is based on the idea that past performance can predict future success based solely on the chart of the stock. In fact, such analysts are often called "chartists". Any one of hundreds of mathematical techniques exist that examine chart behavior -- Bollinger Bands, moving averages, Cup-and-Handle, and so on. All of them are more-or-less totally worthless, since they suffer from the uncertainty principle described above. Malkiel provides damning statistics that show beyond doubt that chartists do not consistently outperform a team of monkeys tossing darts at a board. The key adverb here is "consistently". Malkiel acknowledges that proponents of one or another strategy could show streaks of success -- but that is all they are: streaks. If 1000 people flip a coin ten times, there will be some flippers who flip heads 9/10 times. The same holds for money managers.
Finally, Malkiel examines momentum investing of the type advocated by Keynes, otherwise known as the "Greater Fool Theory". The idea here is that investors can buy an overvalued, overhyped stock and sell it to an even bigger buffoon, who in turn does the same, until eventually somebody is left holding the bag. Malkiel tells the tale of the Tulip Craze in Holland, circa 1630. Tulips became the source of intense speculation, reaching astronomical prices. Eventually, people realized they were holding a bunch of plant bulbs, and the market crashed. The key here is knowing when to sell so that there is a greater fool available to buy your shares. Therein lies the rub - there is no rational way to make that prediction. Those who did well in the late 1990s tech bubble made money using the greater fool approach. Similarly, millions of investors got creamed in the 1990s because they were the greatest fools.
Random Walk is a seminal work on investing that is not only eminently true, but well-written and entertaining. Don't be the greatest fool. Read this book. |
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A reader (MSL quote), USA
<2006-12-25 00:00>
On page 198 of this work, you will find a quote from Benjamin Graham, the father of Security Analysis. Taken from the Financial Analysis Journal, it says "I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when Graham and Dodd was first published; but the situation has changed... [Today] I doubt whether such extensive efforts will generate sufficiently superior selections to justify their cost... I'm on the side of the 'efficient market' school of thought."
What Graham actually said at the end of that passage was "To This Limited Extent, I'm on the side of the 'efficient market' school of thought." Kind of changes the meaning, no?
And what else, if anything, did Graham say in that magazine? He outlined five simple methods of finding stocks that are likely to beat the 'efficient' market.
This sums up about 50% of what's wrong with this book: the 'evidence' is heavily selected. You don't get enough information to make an intelligent judgement on whether something he quotes or cites is valid, or even if it really says what Malkiel claims it does.
Related to this is Malkiel's failure to discuss alternatives. He says (p. 250) that buying and selling on short term momentum is no good, because the transactions costs eat up the profits. Probably true. But any time you're going to buy or sell anyway, the transaction becomes 'free': you can decide to act now or wait a few days and get a better price. Malkiel doesn't mention that.
Nor does Malkiel ever point out that pension and mutual funds, as a group, CAN'T beat the market, or even keep up with "the averages." The funds are so large that for practical purposes, they are the market. And the averages are just numbers. They don't pay management fees, taxes, or commissions.
Similarly, Malkiel says the knew the dot.com bubble would burst, because it had the classic signs of out of control market mania. He was afraid to sell short, though, because he didn't know when. OK, but knowing that certain stocks are certain to be bad investments in the long run means you can improve your investment performance by not buying them. Again, that idea isn't mentioned.
Another problem is that there's no way to refute any of Malkiel's hypotheses, because he keeps changing the rules. When a study allegedly shows that future earnings and dividends can't be predicted, that's evidence that the market is efficient. No further comments needed. But when studies show that buying stocks with low P/E and low P/S ratios consistently beats the market over various periods, he'll argue with it endlessly: it allegedly didn't work for a few years in a certain period; it didn't look at bond prices; it might have involved excess risk. (Actually, the risk was measured, and it turned out to be lower than average for the market. But he doesn't mention that).
In short, the evidence will show the market is 'efficient' because Malkiel won't allow the hypothesis to be refuted.
Finally, the book is intellectually incoherent. For example, Malkiel suggests you find stocks that are likely to grow faster than average, but have relatively low P/E ratios. Not a bad idea, but if the market is efficient, there shouldn't be any way of locating them.
Part Four of this book has some generally good advice for investors, which is why I give it two stars. But it doesn't tell you the whole story. Read Ben Graham's The Intelligent Investor, James P. O'Shaughnessy's book What Works on Wall Street, David Dremen's Contrarian Investment Strategies, or Ken Fisher's Super Stocks, to see some of the evidence that Malkiel distorts and omits.
And when it comes to investing, don't trust anyone blindly. Especially Burton Malkiel.
(A negative review. MSL remarks.)
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1 Total 1 pages 10 items |
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