A Random Walk Down Wall Street 7th Ed.

The Best Investment Advice for the New Century

Burton G. Malkiel

Publisher: Norton, 1999, 461 pages

ISBN: 0-393-04781-4

Keywords: Finance

Last modified: July 8, 2021, 11:16 p.m.

Here, in the newest edition of a perennial bestseller, Burton G. Malkiel maps a clear path through the financial minefield of digital stockbrokers, virtual gurus, and flashy new investment vehicles, preparing individual investors to go head-to-head with the pros on Wall Street.

Now more than ever, this sure-footed, irreverent, and vastly informative volume is an indispensable "best buy" for personal money management. In A Random Walk Down Wall Street you will discover how much fun it can be to beat the pros at their own game — and learn a user-friendly, long-range investment strategy that really works. Skilled in the ways of Wall Street, Malkiel shows why a portfolio of stocks selected at random will match or exceed the performance of stocks carefully picked by professionals using sophisticated analytical techniques.

Investing is too murky a venture to be undertaken without first reading A Random Walk Down Wall Street. You’ll learn how to estimate potential returns, not only for stocks and bonds, but for the full range of investment opportunities, from money market accounts and real estate investments trusts to insurance, home owning, and tangible assets like gold and collectibles.

Savvy to irrational exuberance, deceptive sales pitches, and institutional change, Malkiel brings his characteristic clarity to this enhanced edition, illuminating key decisions facing contemporary investors. Looking for a hot stock? View todays's Internet enthusiasm from the perspective of past financial booms and busts. Concerned about the global economy? Learn the benefits that come with the risks of international investing. Overwhelmed in choosing a fund? Decode the rating game for mutual funds, and discover the unique advantages of index funds over the wide range of riskier — and more expensive — alternatives. Feeling battered by the taxman? Capitalize on the latest opportunities for reducing, and even eliminating, the tax bite from investment earnings.

This latest edition also includes an update of Malkiel’s invaluable "life-cycle guide to investing," showing how to match an investment strategy to each stage of your life. As the author writes, "one's capacity for risk-bearing depends importantly upon one's age and ability to earn income from noninvestment resources."

Sound advice for the wary but ambitious investor, A Random Walk Down Wall Street proves once again that it is possible to be smart and rich.

      • Acknowledgments from Earlier Editions
    • Part One: Stocks and Their Value
      1. Firm Foundations and Castles in the Air
        • What Is a Random Walk?
        • Investing as a Way of Life Today
        • Investing in Theory
        • The Firm-Foundation Theory
        • The Castle-in-the-Air Theory
        • How the Random Walk Is to Be Conducted
      2. The Madness of Crowds
        • The Tulip-Bulb Graze
        • The South Sea Bubble
        • The Florida Real Estate Craze
        • Wall Street Lays an Egg
        • An Afterword
      3. Stock Valuation from the Sixties through the Nineties
        • The Sanity of Institutions
        • The Soaring Sixties
          • The New "New Era": The Growth-Stock/New-Issue Craze
          • Synergy Generates Energy. The Conglomerate Boom
          • Performance Comes to the Market. The Bubble in Concept Stocks
        • The Sour Seventies
          • The Nifty Fifty
        • The Roaring Eighties
          • The Triumphant Return of New Issues
          • Concepts Conquer Again: The Biotechnology Bubble
          • The Chinese Romance with the Lycoris Plant
          • Some Other Bubbles of the 1980s
        • What Does It All Mean?
        • The Nervy Nineties
          • The Japanese Yen for Land and Stocks
          • The Internet Craze of the Late 1990s
        • A Final Word
      1. The Firm-Foundation Theory of Stock Prices
        • The "Fundamental" Determinants of Stock Prices
        • Two Important Caveats
        • Testing the Rules
        • One More Caveat
        • What's Left of the Firm Foundation?
    • Part Two: How the Pros Play the Biggest Game in Town
      1. Technical and Fundamental Analysis
        • Technical versus Fundamental Analysis
        • What Can Charts Tell You?
        • The Rationale for the Charting Method
        • Why Might Charting Fail to Work?
        • From Chartist to Technician
        • The Technique of Fundamental Analysis
        • Why Might Fundamental Analysis Fail to Work?
        • Using Fundamental and Technical Analysis Together
      2. Technical Analysis and the Random-Walk Theory
        • Holes in Their Shoes and Ambiguity in Their Forecasts
        • Is There Momentum in the Stock Market?
        • Just What Exactly Is a Random Walk?
        • Some More Elaborate Technical Systems
          • The Filter System
          • The Dow Theory
          • The Relative-Strength System
          • Price-Volume Systems
          • Reading Chart Patterns
          • Randomness Is Hard to Accept
        • A Gaggle of Other Technical Theories to Help You Lose Money
          • The Hemline Indicator
          • The Super Bowl Indicator
          • The Odd-Lot Theory
          • A Few More Systems
        • Technical Market Gurus
        • Why Are Technicians Still Hired?
        • Appraising the Counterattack
        • Implications for Investors
      3. How Good Is Fundamental Analysis?
        • The Views from Wall Street and Academia
        • Are Security Analysts Fundamentally Clairvoyant?
        • Why the Crystal Ball Is Clouded
          1. The Influence of Random Events
          2. The Creation of Dubious Reported Earnings through "Creative" Accounting Procedures
          3. The Basic Incompetence of Many of the Analysts Themselves
          4. The Loss of the Best Analysts to the Sales Desk or to Portfolio Management
        • Do Security Analysts Pick Winners? The Performance of the Mutual Funds
        • Can Any Fundamental System Pick Winners?
        • The Verdict on Market Timing
        • The Semi-strong and Strong Forms of the Random-Walk Theory
        • The Middle of the Road: A Personal Viewpoint
    • Part Three: The New Investment Technology
      1. A New Walking Shoe: Modern Portfolio Theory
        • The Role of Risk
        • Defining Risk: The Dispersion of Returns
        • Exhibit
          • Expected Return and Variance: Measures of Reward and Risk
        • Documenting Risk: A Long-Run Study
        • Reducing Risk: Modern Portfolio Theory (MPT)
        • Diversification in Practice
      2. Reaping Reward by Increasing Risk
        • Beta and Systematic Risk
        • The Capital-Asset Pricing Model (CAPM)
        • Let's Look at the Record
        • An Appraisal of the Evidence
          • The Quant Quest for Better Measures of Risk: Arbitrage Pricing Theory
        • A Summing Up
      3. The Assault on the Random-Walk Theory:
        • Is the Market Predictable after All?
        • Predictable Patterns in the Behavior of Stock Prices
          1. Stocks Do Sometimes Get on One-Way Streets
          2. But Eventually Stock Prices Do Change Direction and Hence Stockholder Returns Tend to Reverse Themselves
          3. Stocks Are Subject to Seasonal Moodiness, Especially at the Beginning of the Year and the End of the Week
        • Predictable Relationships between Certain "Fundamental" Variables and Future Stock Prices
          1. Smaller Is Often Better
          2. Stocks with Low Price-Earnings Multiples Outperform Those with High Multiples
          3. Stocks that Sell at Low Multiples of Their Book Values Tend to Produce Higher Subsequent Returns
          4. Higher Initial Dividends and Lower Price-Earnings Multiples Have Meant Higher Subsequent Returns
          5. The "Dogs of the Dow" Strategy
        • And the Winner Is…
          • The Performance of Professional Investors
        • Concluding Comments
        • Appendix: The Market Crash of October 1987
    • Part Four: A Practical Guide for Random Walkers and Other Investors
      1. A Fitness Manual for Random Walkers
        • Exercise 1: Cover Thyself with Protection
        • Exercise 2: Know Your Investment Objectives
        • Exercise 3: Dodge Uncle Sam Whenever You Can
          • Pension Plans and IRAs
          • Keogh Plans
          • Roth IRAs
          • Tax-Deferred Annuities
        • Exercise 4: Be Competitive; Let the Yield on Your Cash Reserve Keep Pace with Inflation
          • Money-Market Mutual Funds
          • Money-Market Deposit Accounts
          • Bank Certificates
          • Tax-Exempt Money-Market Funds
        • Exercise 5: Investigate a Promenade through Bond Country
          • Zero-Coupon Bonds Can Generate Large Future Returns
          • No-Load Bond Funds Are Appropriate Vehicles for Individual Investors
          • Tax-Exempt Bonds Are Useful for High-Bracket Investors
          • Hot TIPS Inflation Indexed Bonds
          • Should You Be a Bond-Market junkie?
        • Exercise 6: Begin Your Walk at Your Own Home; Renting Leads to Flabby Investment Muscles
        • Exercise 7: Beef Up with Real Estate Investment Trusts
        • Exercise 8: Tiptoe through the Investment Fields of Gold and Collectibles
        • Exercise 9: Remember that Commission Costs Are Not Random; Some Are Cheaper than Others
        • Exercise 10: Diversify Your Investment Steps
        • A Final Checkup
      2. Handicapping the Financial Race: A Primer in Understanding and Projecting Returns from Stocks and Bonds
        • What Determines the Returns from Stocks and Bonds?
        • Three Eras of Financial Market Returns
          • Era I : The Age of Comfort
          • Era II The Age of Angst
          • Era III: The Age of Exuberance
        • The Age of the Millennium
        • Appendix: Projecting Returns for Individual Stocks
      3. A Life-Cycle Guide to Investing
        • Four Asset Allocation Principles
          1. Risk and Reward Are Related
          2. Your Actual Risk in Stock and Bond Investing Depends on the Length of Time You Hold Your Investment
          3. Dollar-Cost Averaging Can Reduce the Risks of Investing in Stock, and Bonds
          4. The Risks You Can Afford to Take Depend on Your Total Financial Situation
        • Three Guidelines to Tailoring a Life-Cycle Investment Plan
          1. Specific Needs Require Dedicated Specific Assets

          1. Recognize Your Tolerance for Risk

          1. Persistent Savings in Regular Amounts, No Matter How Small, Pays Off
        • The Life-Cycle Investment Guide
      1. Three Giant Steps Down Wall Street
        • The No-Brainer Step: Investing in Index Funds
          • The Index Fund Solution: A Summary
          • A Broader Definition of Indexing
          • A Specific Index Fund Portfolio
          • The Tax-Managed Index Fund
        • The Do-It-Yourself Step: Potentially Useful Stock-Picking Rules
        • The Substitute-Player Step: Hiring a Professional Wall-Street Walker
          • Risk Level
          • Unrealized Gains
          • Expense Ratios
        • The Morningstar Mutual-Fund Information Service
        • A Primer on Mutual-Fund Costs
          • Loading Fees
          • Expense Charges
          • Comparing Mutual-Fund Costs
        • The Malkiel Step
        • A Paradox
        • Some Last Reflections on Our Walk
    • A Random Walker's Address Book and Reference Guide to Mutual Funds
  • Bibliography


A Random Walk Down Wall Street

Reviewed by Roland Buresund

OK ***** (5 out of 10)

Last modified: May 21, 2007, 2:54 a.m.

The classical text on effective (or not) markets. You need it in the bookshelf.


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