A Random Walk down Wall Street: The Time-Tested Strategy for Successful Investing

A Random Walk down Wall Street: The Time-Tested Strategy for Successful Investing

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Updated with a new chapter that draws on behavioral finance, the field that studies the psychology of investment decisions, here is the best-selling, authoritative, and gimmick-free guide to investing. Burton Malkiel evaluates the full range of investment opportunities, from stocks, bonds, and money markets to real estate investment trusts and insurance, home ownership, and tangible assets such as gold and collectibles. This edition includes new strategies for rearranging your portfolio for retirement, along with the book's classic life-cycle guide to investing, which matches the needs of investors in any age bracket. A Random Walk Down Wall Street long ago established itself as a must-read, the first book to purchase before starting a portfolio. So whether you want to brief yourself on the ways of the market before talking to a broker or follow Malkiel's easy steps to managing your own portfolio, this book remains the best investing guide money can buy.

Product Details

ISBN-13: 9781436165303
Publisher: Recorded Books, LLC
Publication date: 12/02/2008
Product dimensions: 6.00(w) x 1.25(h) x 9.00(d)

About the Author

Burton G. Malkiel is the Chemical Bank Chairman's Professor of Economics at Princeton University.

Table of Contents

Acknowledgments from Earlier Editions19
Part 1Stocks and Their Value
1.Firm Foundations and Castles in the Air23
What Is a Random Walk?24
Investing as a Way of Life Today26
Investing in Theory28
The Firm-Foundation Theory29
The Castle-in-the-Air Theory30
How the Random Walk Is to Be Conducted33
2.The Madness of Crowds34
The Tulip-Bulb Craze35
The South Sea Bubble38
Wall Street Lays an Egg44
An Afterword51
3.Stock Valuation from the Sixties through the Nineties52
The Sanity of Institutions52
The Soaring Sixties53
The New "New Era": The Growth-Stock/New-Issue Craze53
Synergy Generates Energy: The Conglomerate Boom57
Performance Comes to the Market: The Bubble in Concept Stocks64
The Sour Seventies68
The Nifty Fifty68
The Roaring Eighties71
The Triumphant Return of New Issues71
Concepts Conquer Again: The Biotechnology Bubble72
ZZZZ Best Bubble of All74
What Does It All Mean?76
The Nervy Nineties77
The Japanese Yen for Land and Stocks77
4.The Biggest Bubble of All: Surfing on the Internet82
How Bubbles Arise82
A Broad-Scale High-Tech Bubble84
An Unprecedented New-Issue Craze87
Security Analysts $peak Up92
New Valuation Metrics94
The Writes of the Media96
Fraud Slithers In and Strangles the Market98
Should We Have Known the Dangers?101
A Final Word104
5.The Firm-Foundation Theory of Stock Prices105
The "Fundamental" Determinants of Stock Prices106
Two Important Caveats113
Testing the Rules116
One More Caveat118
What's Left of the Firm Foundation?119
Part 2How the Pros Play the Biggest Game in Town
6.Technical and Fundamental Analysis125
Technical versus Fundamental Analysis126
What Can Charts Tell You?128
The Rationale for the Charting Method132
Why Might Charting Fail to Work?134
From Chartist to Technician135
The Technique of Fundamental Analysis136
Why Might Fundamental Analysis Fail to Work?140
Using Fundamental and Technical Analysis Together141
7.Technical Analysis and the Random-Walk Theory145
Holes in Their Shoes and Ambiguity in Their Forecasts145
Is There Momentum in the Stock Market?147
Just What Exactly Is a Random Walk?148
Some More Elaborate Technical Systems152
The Filter System152
The Dow Theory153
The Relative-Strength System154
Price-Volume Systems154
Reading Chart Patterns154
Randomness Is Hard to Accept156
A Gaggle of Other Technical Theories to Help You Lose Money157
The Hemline Indicator157
The Super Bowl Indicator159
The Odd-Lot Theory160
A Few More Systems161
Technical Market Gurus161
Why Are Technicians Still Hired?165
Appraising the Counterattack166
Implications for Investors169
8.How Good Is Fundamental Analysis?171
The Views from Wall Street and Academia172
Are Security Analysts Fundamentally Clairvoyant?172
Why the Crystal Ball Is Clouded176
1.The Influence of Random Events177
2.The Production of Dubious Reported Earnings through "Creative" Accounting Procedures178
3.The Basic Incompetence of Many of the Analysts Themselves181
4.The Loss of the Best Analysts to the Sales Desk or to Portfolio Management183
5.The Conflicts of Interest between Research and Investment Banking Departments183
Do Security Analysts Pick Winners?--The Performance of the Mutual Funds186
Can Any Fundamental System Pick Winners?192
The Verdict on Market Timing193
The Semi-strong and Strong Forms of the Efficient-Market Theory196
The Middle of the Road: A Personal Viewpoint198
Part 3The New Investment Technology
9.A New Walking Shoe: Modern Portfolio Theory203
The Role of Risk204
Defining Risk: The Dispersion of Returns205
Illustration: Expected Return and Variance Measures of Reward and Risk205
Documenting Risk: A Long-Run Study208
Reducing Risk: Modern Portfolio Theory (MPT)210
Diversification in Practice214
10.Reaping Reward by Increasing Risk222
Beta and Systematic Risk223
The Capital-Asset Pricing Model (CAPM)226
Let's Look at the Record231
An Appraisal of the Evidence234
The Quant Quest for Better Measures of Risk: Arbitrage Pricing Theory236
A Summing Up240
11.Potshots at the Efficient-Market Theory and Why They Miss242
What Do We Mean by Saying Markets Are Efficient?244
Potshots That Completely Miss the Target246
Dogs of the Dow246
January Effect247
"Thank God It's Monday Afternoon" Pattern247
Hot News Response248
Why the Aim Is So Bad249
Potshots That Get Close but Still Miss the Target250
The Trend Is Your Friend (Otherwise Known as Short-Term Momentum)250
The Dividend Jackpot Approach252
The Initial P/E Predictor254
The "Back We Go Again" Strategy (Otherwise Known as Long-Run Return Reversals)255
The Smaller Is Better Effect259
The "Value Will Win" Record261
Stocks with Low Price-Earnings Multiples Outperform Those with High Multiples261
Stocks That Sell at Low Multiples of Their Book Values Tend to Produce Higher Subsequent Returns263
But Does "Value" Really Trump Growth on a Consistent Basis?264
Why Even Close Shots Miss264
And the Winner Is...267
The Performance of Professional Investors267
A Summing Up271
Part 4A Practical Guide for Random Walkers and Other Investors
12.A Fitness Manual for Random Walkers277
Exercise 1Cover Thyself with Protection278
Exercise 2Know Your Investment Objectives279
Exercise 3Dodge Uncle Sam Whenever You Can287
Pension Plans and IRAs287
Keogh Plans288
Roth IRAs290
Tax-Deferred Annuities291
Saving for College: As Easy as 529292
Exercise 4Be Competitive--Let the Yield on Your Cash Reserve Keep Pace with Inflation293
Money-Market Mutual Funds293
Money-Market Deposit Accounts294
Bank Certificates296
Tax-Exempt Money-Market Funds297
Exercise 5Investigate a Promenade through Bond Country297
Zero-Coupon Bonds Can Generate Large Future Returns299
No-Load Bond Funds Are Appropriate Vehicles for Individual Investors300
Tax-Exempt Bonds Are Useful for High-Bracket Investors301
Hot TIPS: Inflation-Indexed Bonds303
Should You Be a Bond-Market Junkie?304
Exercise 6Begin Your Walk at Your Own Home--Renting Leads to Flabby Investment Muscles305
Exercise 7Beef Up with Real Estate Investment Trusts306
Exercise 8Tiptoe through the Fields of Gold, Collectibles, and Other Investments308
Exercise 9Remember That Commission Costs Are Not Random; Some Are Cheaper than Others311
Exercise 10Diversify Your Investment Steps312
A Final Checkup313
13.Handicapping the Financial Race: A Primer in Understanding and Projecting Returns from Stocks and Bonds314
What Determines the Returns from Stocks and Bonds?314
Three Eras of Financial Market Returns319
Era IThe Age of Comfort320
Era IIThe Age of Angst322
Era IIIThe Age of Exuberance326
The Age of the Millennium328
14.A Life-Cycle Guide to Investing333
Four Asset-Allocation Principles334
1.Risk and Reward Are Related334
2.Your Actual Risk in Stock and Bond Investing Depends on the Length of Time You Hold Your Investment335
3.Dollar-Cost Averaging Can Reduce the Risks of Investing in Stocks and Bonds338
4.Distinguishing between Your Attitude toward and Your Capacity for Risk342
Three Guidelines to Tailoring a Life-Cycle Investment Plan344
1.Specific Needs Require Dedicated Specific Assets344
2.Recognize Your Tolerance for Risk345
3.Persistent Saving in Regular Amounts, No Matter How Small, Pays Off348
The Life-Cycle Investment Guide349
15.Three Giant Steps Down Wall Street354
The No-Brainer Step: Investing in Index Funds355
The Index-Fund Solution: A Summary357
A Broader Definition of Indexing360
A Specific Index-Fund Portfolio363
The Tax-Managed Index Fund364
The Do-It-Yourself Step: Potentially Useful Stock-Picking Rules368
Rule 1Confine stock purchases to companies that appear able to sustain above-average earnings growth for at least five years369
Rule 2Never pay more for a stock than can reasonably be justified by a firm foundation of value369
Rule 3It helps to buy stocks with the kinds of stories of anticipated growth on which investors can build castles in the air370
Rule 4Trade as little as possible370
The Substitute-Player Step: Hiring a Professional Wall Street Walker372
The Morningstar Mutual-Fund Information Service374
A Primer on Mutual-Fund Costs375
Loading Fees378
Expense Charges378
Comparing Mutual-Fund Costs379
The Malkiel Step380
A Paradox383
Some Last Reflections on Our Walk385
A Random Walker's Address Book and Reference Guide to Mutual Funds387

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