A Random Walk Down Wall Street
Jay Naidu
FIN5220-001: Security Analysis Port Mgmt.
Dr. S. Zong
18th November 2014
A Random Walk Down Wall Street
By Burton G. Malkiel
Introduction
A Random Walk refers to the term that future steps or directions cannot be predicted by past history. In the investment world this means that how a stock performs in the immediate future cannot be predicted from its past performances. Academics point out that any randomly selected group of securities would perform just as well or better than carefully analyzed portfolio created by fund managers based on its performance history. Currently in its 10th edition A Random Walk Down Wall Street by Burton G. Malkiel is a time tested strategy for successful investing for people of all walks; from the novice entrepreneur to the seasoned investor. It gives a clear understanding of how the stock market works and makes a compelling argument for passive investing with a long term goal.
Efficient Markets
In his preface Burton G. Malkiel states that the original message behind A Random Walk Down Wall Street is that “investors would be better off buying and holding an index fund than attempting to buy and sell individual securities or actively managed funds”, and that the stock market is pretty efficient and most everyone is wasting their time trying to find inefficiencies to exploit. By market being efficient does not mean that the market is always correct, but that the market is quick to reflects new information and mostly correctly, secondly that the market will not allow above average returns without relative risk. In chapter 11 he some common arguments against EMH and subsequently debunks them all.
Firm Foundations and Castles in the Air
Chapter 1 begins by defining two theories traditionally used by investment professionals to determine asset valuation, the “firm foundation theory” and the “castles in the air theory”. The firm foundation theory suggests that investments should be made by determining the intrinsic value of
FIN5220-001: Security Analysis Port Mgmt.
Dr. S. Zong
18th November 2014
A Random Walk Down Wall Street
By Burton G. Malkiel
Introduction
A Random Walk refers to the term that future steps or directions cannot be predicted by past history. In the investment world this means that how a stock performs in the immediate future cannot be predicted from its past performances. Academics point out that any randomly selected group of securities would perform just as well or better than carefully analyzed portfolio created by fund managers based on its performance history. Currently in its 10th edition A Random Walk Down Wall Street by Burton G. Malkiel is a time tested strategy for successful investing for people of all walks; from the novice entrepreneur to the seasoned investor. It gives a clear understanding of how the stock market works and makes a compelling argument for passive investing with a long term goal.
Efficient Markets
In his preface Burton G. Malkiel states that the original message behind A Random Walk Down Wall Street is that “investors would be better off buying and holding an index fund than attempting to buy and sell individual securities or actively managed funds”, and that the stock market is pretty efficient and most everyone is wasting their time trying to find inefficiencies to exploit. By market being efficient does not mean that the market is always correct, but that the market is quick to reflects new information and mostly correctly, secondly that the market will not allow above average returns without relative risk. In chapter 11 he some common arguments against EMH and subsequently debunks them all.
Firm Foundations and Castles in the Air
Chapter 1 begins by defining two theories traditionally used by investment professionals to determine asset valuation, the “firm foundation theory” and the “castles in the air theory”. The firm foundation theory suggests that investments should be made by determining the intrinsic value of