A Random Walk Down Wall Street

A Random Walk Down Wall Street, written by Burton Gordon Malkiel, a Princeton economist, is a book on the subject of stock markets which popularized the random walk hypothesis. Malkiel argues that asset prices typically exhibit signs of a random walk and that one cannot consistently outperform market averages. The book is frequently cited by those in favor of the efficient-market hypothesis. As of 2020, there have been twelve editions and over 1.5 million copies sold.[1] A practical popularization is The Random Walk Guide to Investing: Ten Rules for Financial Success.[2]

A Random Walk Down Wall Street
AuthorBurton Malkiel
CountryUnited States
LanguageEnglish
GenreNon-fiction
PublisherW. W. Norton & Company, Inc.
Publication date
1973
Pages456 pp.
ISBN0-393-06245-7
OCLC72798896
332.6 22
LC ClassHG4521 .M284 2007

Investing techniques

Malkiel examines some popular investing techniques, including technical analysis and fundamental analysis, in light of academic research studies of these methods. Through detailed analysis, he notes significant flaws in both techniques, concluding that, for most investors, following these methods will produce inferior results compared to passive strategies.

Malkiel has a similar critique for methods of selecting actively managed mutual funds based upon past performances. He cites studies indicating that actively managed mutual funds vary greatly in their success rates over the long term, often underperforming in years following their successes, thereby regressing toward the mean. Malkiel suggests that given the distribution of fund performances, it is statistically unlikely that an average investor would happen to select those few mutual funds which will outperform their benchmark index over the long term.

Alternative view

In 1984, Warren Buffett gave a speech at Columbia University rebutting the Efficient Market Hypothesis. See The Superinvestors of Graham-and-Doddsville. As of 2013, Malkiel has not yet responded and has ignored Buffett's argument.

However, Buffett recently reversed course and has become a fan of index investing. In the 2013 Berkshire Hathaway shareholder letter, he had this to say about where he would suggest the trustee of his estate put his money when he died, "10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund (I suggest Vanguard’s)."[3]:20 When asked what advice he would give to investors, Buffett had this to say: "lethargy bordering on sloth remains the best investment style. The correct holding period for the stock market is forever."

See also

References
  1. Burton Malkiel (2011) A random walk down Wall Street: the time-tested strategy for successful investing
  2. Hardback: ISBN 978-0-393-05854-3, Paperback: ISBN 978-0-393-32639-0
  3. Buffett, Warren (2013). "2013 Letter to Shareholders of Berkshire Hathaway" (PDF).
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