A Random Walk

6 Pages 1383 Words

A Random Walk Down Wall Street

Burton G Malkiel, the author of A Random Walk Down Wall Street, gives me the reader an easy way understand information about personal investing in today’s stock market. The book is divided into four parts: Stocks and their values, how the pros play the biggest game in town, the new investment technology, and a practical guide for random walkers and other investors. This book reflects on many different aspects for an individual on what are the best ways for that person to invest their money.
Random walk theory gained popularity in 1973 when Burton Malkiel wrote A Random Walk Down Wall Street, a book that is now regarded as an investment classic. Random walk is a stock market theory that states that the past movement or direction of the price of a stock or overall market cannot be used to predict its future movement. Originally examined by Maurice Kendall in 1953, the theory states that stock price fluctuations are independent of each other and have the same probability distribution, but, over a period of time, prices maintain an upward trend.
In short, random walk says that stocks take a random and unpredictable path. The chance of a stock's future price going up is the same as it going down. A follower of random walk believes it is impossible to outperform the market without assuming additional risk. In his book, Malkiel preaches that both technical analysis and fundamental analysis are largely a waste of time and are still unproven in outperforming the markets.
Malkiel constantly states that a long-term buy-end-hold strategy is the best and that individuals should not attempt to time the markets. Attempts based on technical, fundamental, or any other analysis is futile. He backs this up with statistics showing that most mutual funds fail to beat benchmark averages like the S&P 500.
While many still follow the preaching of Malkiel, others believe that the investing landscape is very different th...