Take A Random Walk Down Wall Street

Last Updated April 30th 2019
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“Talk to 10 money experts and you’re likely to hear 10 recommendations for Burton Malkiel’s classic investing book.”

The Wall Street Journal

If you still haven't read “A Random Walk Down Wall Street” our Trading Education team recommends you to add it to your must-read list. More than forty years after its first publication, this book remains one of the most influential investing reads ever written.

A Random Walk Down Wall Street was published in 1973 by Burton Malkiel and popularised the ‘Random Walk’ hypothesis in finance. The concept can be traced back to 1863 where French broker Jules Regnault first used similar terminology, but it was Malkiel’s book which brought the term into common use. In short, the financial theory of Random Walk, concerns the stock market, and the fluctuation in prices.

It deems these fluctuations in prices as random, hence the Random Walk name, and that past activity cannot and will not influence future movement. Maurice Kendall, who used the term in his 1953 book ‘Random Walk Theory’ stated that whilst fluctuations cannot be predicted, they generally relied on one another and over a period of time, prices generally followed an upward trend.

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Theories explored and explained

In Burton Malkiel’s book, he advises that technical and fundamental analysis are a waste of time, and generally speaking, a buy and hold strategy is the most effective way of investing. This effectively means adopting a long term strategy when looking at stock market price trends. This theory still holds strong today. In light of the recent financial crisis, the strongest position to adopt whilst investing is a buy and hold strategy. Contrary to popular belief, this strategy is still likely to hold firm compared to portfolios that have been picked by portfolio managers and complex financial algorithms. This is backed up by hard facts from Malkiel, illustrating how most mutual funds do not reach their benchmark targets.

In this seminal book, Malkiel also examines the benefits of investing in emerging markets, and also how to avoid investing in what is simply the latest trend, or ‘Smart Beta’.

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A brief history of the author, Burton Malkiel

Photo by: Gina Levay/ www.kiplinger.com

Burton Gordon Malkiel was born in 1932 and is an American economist, writer and successful investor. He is also a two-time Chairman of the economics department at Princeton University, where he currently holds the position of Chemical Bank chairman’s professor of economics. He currently also holds the position of Chief Investment Officer at Wealthfront Inc., a software-based financial adviser.

Malkiel received his bachelor’s degree and MBA from Harvard University during the 1950s, and after a stint in the financial world, he returned to earn his doctorate in 1964 from Princeton University.

 

The timeless ‘Take A Random Walk Down Wall Street’

The fact that the book is still regarded today as one of the best books on investment is a testament to Malkiel’s foresight. It also shows that the book is not too dense and microscopic in regards to financial terms, and can be enjoyed by investors of any age. The beauty of this book is that it provides helpful tips on stock market investment for anyone. Throughout the book are step by step investment guides on how best to approach difficult financial scenarios.

See also: Invest like Peter Lynch – The Stock Picking Expert

 

The book’s lasting legacy in investment finance

Malkiel’s book was certainly a seminal piece of work in regards to being an investment guide and financial aid. His explored theory of Random Walk is still highly regarded by some investors today. However, some investment theorists believe that a lot has changed in the four decades since ‘A Random Walk Down Wall Street’ was published.

With improvements in technology that have rendered the financial landscape almost incomparable to that of the 1980s, some say that the theory is out of date. With digitisation has come instant updates and stock analysis which could make random walk theory redundant.

But many believe that Malkiel’s theorems still hold strong. It is difficult to tell for certain whether Malkiel’s book is still relevant to today’s financial markets, but one thing all investors can agree on is the importance of his book in regards to financial history. It’s a must-read.

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Sources:

[1] www.investopedia.com

[2] phaniinvestors.wordpress.com

[3] www.target.com

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