A Random Walk Down Wall Street: Completely Revised and Updated Eighth Edition / Edition 8

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Overview

The million-copy bestseller, now fully up-to-date and ready for post-dot-com investors.
Using the dot-com crash as an object lesson in how not to manage your portfolio, here is the best-selling, gimmick-free, irreverent, vastly informative guide to navigating the turbulence of the market and managing investments with confidence.A Random Walk Down Wall Street is well established as a staple of the business shelf, the first book any investor should read before taking the plunge and starting a portfolio. With its life-cycle guide to investing, it matches the needs of investors at any age bracket. Burton G. Malkiel shows how to analyze the potential returns, not only for stocks and bonds but also for the full range of investment opportunities, from money market accounts and real estate investment trusts to insurance, home ownership, and tangible assets like gold and collectibles.
Whether you want to verse yourself in 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.
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Product Details

  • ISBN-13: 9780393325355
  • Publisher: Norton, W. W. & Company, Inc.
  • Publication date: 12/19/2003
  • Edition description: Completely Revised and Updated
  • Edition number: 8
  • Pages: 416
  • Sales rank: 215,595
  • Product dimensions: 5.50 (w) x 8.20 (h) x 1.20 (d)

Meet the Author

Burton G. Malkiel is the Chemical Bank Chairman's Professor of Economics at Princeton University. He is a former member of the Council of Economic Advisers and has served on the boards of several major corporations.
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Table of Contents

Preface 15
Acknowledgments from Earlier Editions 19
Part 1 Stocks and Their Value
1. Firm Foundations and Castles in the Air 23
What Is a Random Walk? 24
Investing as a Way of Life Today 26
Investing in Theory 28
The Firm-Foundation Theory 29
The Castle-in-the-Air Theory 30
How the Random Walk Is to Be Conducted 33
2. The Madness of Crowds 34
The Tulip-Bulb Craze 35
The South Sea Bubble 38
Wall Street Lays an Egg 44
An Afterword 51
3. Stock Valuation from the Sixties through the Nineties 52
The Sanity of Institutions 52
The Soaring Sixties 53
The New "New Era": The Growth-Stock/New-Issue Craze 53
Synergy Generates Energy: The Conglomerate Boom 57
Performance Comes to the Market: The Bubble in Concept Stocks 64
The Sour Seventies 68
The Nifty Fifty 68
The Roaring Eighties 71
The Triumphant Return of New Issues 71
Concepts Conquer Again: The Biotechnology Bubble 72
ZZZZ Best Bubble of All 74
What Does It All Mean? 76
The Nervy Nineties 77
The Japanese Yen for Land and Stocks 77
4. The Biggest Bubble of All: Surfing on the Internet 82
How Bubbles Arise 82
A Broad-Scale High-Tech Bubble 84
An Unprecedented New-Issue Craze 87
TheGlobe.com 90
Security Analysts $peak Up 92
New Valuation Metrics 94
The Writes of the Media 96
Fraud Slithers In and Strangles the Market 98
Should We Have Known the Dangers? 101
A Final Word 104
5. The Firm-Foundation Theory of Stock Prices 105
The "Fundamental" Determinants of Stock Prices 106
Two Important Caveats 113
Testing the Rules 116
One More Caveat 118
What's Left of the Firm Foundation? 119
Part 2 How the Pros Play the Biggest Game in Town
6. Technical and Fundamental Analysis 125
Technical versus Fundamental Analysis 126
What Can Charts Tell You? 128
The Rationale for the Charting Method 132
Why Might Charting Fail to Work? 134
From Chartist to Technician 135
The Technique of Fundamental Analysis 136
Why Might Fundamental Analysis Fail to Work? 140
Using Fundamental and Technical Analysis Together 141
7. Technical Analysis and the Random-Walk Theory 145
Holes in Their Shoes and Ambiguity in Their Forecasts 145
Is There Momentum in the Stock Market? 147
Just What Exactly Is a Random Walk? 148
Some More Elaborate Technical Systems 152
The Filter System 152
The Dow Theory 153
The Relative-Strength System 154
Price-Volume Systems 154
Reading Chart Patterns 154
Randomness Is Hard to Accept 156
A Gaggle of Other Technical Theories to Help You Lose Money 157
The Hemline Indicator 157
The Super Bowl Indicator 159
The Odd-Lot Theory 160
A Few More Systems 161
Technical Market Gurus 161
Why Are Technicians Still Hired? 165
Appraising the Counterattack 166
Implications for Investors 169
8. How Good Is Fundamental Analysis? 171
The Views from Wall Street and Academia 172
Are Security Analysts Fundamentally Clairvoyant? 172
Why the Crystal Ball Is Clouded 176
1. The Influence of Random Events 177
2. The Production of Dubious Reported Earnings through "Creative" Accounting Procedures 178
3. The Basic Incompetence of Many of the Analysts Themselves 181
4. The Loss of the Best Analysts to the Sales Desk or to Portfolio Management 183
5. The Conflicts of Interest between Research and Investment Banking Departments 183
Do Security Analysts Pick Winners?--The Performance of the Mutual Funds 186
Can Any Fundamental System Pick Winners? 192
The Verdict on Market Timing 193
The Semi-strong and Strong Forms of the Efficient-Market Theory 196
The Middle of the Road: A Personal Viewpoint 198
Part 3 The New Investment Technology
9. A New Walking Shoe: Modern Portfolio Theory 203
The Role of Risk 204
Defining Risk: The Dispersion of Returns 205
Illustration: Expected Return and Variance Measures of Reward and Risk 205
Documenting Risk: A Long-Run Study 208
Reducing Risk: Modern Portfolio Theory (MPT) 210
Diversification in Practice 214
10. Reaping Reward by Increasing Risk 222
Beta and Systematic Risk 223
The Capital-Asset Pricing Model (CAPM) 226
Let's Look at the Record 231
An Appraisal of the Evidence 234
The Quant Quest for Better Measures of Risk: Arbitrage Pricing Theory 236
A Summing Up 240
11. Potshots at the Efficient-Market Theory and Why They Miss 242
What Do We Mean by Saying Markets Are Efficient? 244
Potshots That Completely Miss the Target 246
Dogs of the Dow 246
January Effect 247
"Thank God It's Monday Afternoon" Pattern 247
Hot News Response 248
Why the Aim Is So Bad 249
Potshots That Get Close but Still Miss the Target 250
The Trend Is Your Friend (Otherwise Known as Short-Term Momentum) 250
The Dividend Jackpot Approach 252
The Initial P/E Predictor 254
The "Back We Go Again" Strategy (Otherwise Known as Long-Run Return Reversals) 255
The Smaller Is Better Effect 259
The "Value Will Win" Record 261
Stocks with Low Price-Earnings Multiples Outperform Those with High Multiples 261
Stocks That Sell at Low Multiples of Their Book Values Tend to Produce Higher Subsequent Returns 263
But Does "Value" Really Trump Growth on a Consistent Basis? 264
Why Even Close Shots Miss 264
And the Winner Is ... 267
The Performance of Professional Investors 267
A Summing Up 271
Part 4 A Practical Guide for Random Walkers and Other Investors
12. A Fitness Manual for Random Walkers 277
Exercise 1 Cover Thyself with Protection 278
Exercise 2 Know Your Investment Objectives 279
Exercise 3 Dodge Uncle Sam Whenever You Can 287
Pension Plans and IRAs 287
Keogh Plans 288
Roth IRAs 290
Tax-Deferred Annuities 291
Saving for College: As Easy as 529 292
Exercise 4 Be Competitive--Let the Yield on Your Cash Reserve Keep Pace with Inflation 293
Money-Market Mutual Funds 293
Money-Market Deposit Accounts 294
Bank Certificates 296
Tax-Exempt Money-Market Funds 297
Exercise 5 Investigate a Promenade through Bond Country 297
Zero-Coupon Bonds Can Generate Large Future Returns 299
No-Load Bond Funds Are Appropriate Vehicles for Individual Investors 300
Tax-Exempt Bonds Are Useful for High-Bracket Investors 301
Hot TIPS: Inflation-Indexed Bonds 303
Should You Be a Bond-Market Junkie? 304
Exercise 6 Begin Your Walk at Your Own Home--Renting Leads to Flabby Investment Muscles 305
Exercise 7 Beef Up with Real Estate Investment Trusts 306
Exercise 8 Tiptoe through the Fields of Gold, Collectibles, and Other Investments 308
Exercise 9 Remember That Commission Costs Are Not Random; Some Are Cheaper than Others 311
Exercise 10 Diversify Your Investment Steps 312
A Final Checkup 313
13. Handicapping the Financial Race: A Primer in Understanding and Projecting Returns from Stocks and Bonds 314
What Determines the Returns from Stocks and Bonds? 314
Three Eras of Financial Market Returns 319
Era I The Age of Comfort 320
Era II The Age of Angst 322
Era III The Age of Exuberance 326
The Age of the Millennium 328
14. A Life-Cycle Guide to Investing 333
Four Asset-Allocation Principles 334
1. Risk and Reward Are Related 334
2. Your Actual Risk in Stock and Bond Investing Depends on the Length of Time You Hold Your Investment 335
3. Dollar-Cost Averaging Can Reduce the Risks of Investing in Stocks and Bonds 338
4. Distinguishing between Your Attitude toward and Your Capacity for Risk 342
Three Guidelines to Tailoring a Life-Cycle Investment Plan 344
1. Specific Needs Require Dedicated Specific Assets 344
2. Recognize Your Tolerance for Risk 345
3. Persistent Saving in Regular Amounts, No Matter How Small, Pays Off 348
The Life-Cycle Investment Guide 349
15. Three Giant Steps Down Wall Street 354
The No-Brainer Step: Investing in Index Funds 355
The Index-Fund Solution: A Summary 357
A Broader Definition of Indexing 360
A Specific Index-Fund Portfolio 363
The Tax-Managed Index Fund 364
The Do-It-Yourself Step: Potentially Useful Stock-Picking Rules 368
Rule 1 Confine stock purchases to companies that appear able to sustain above-average earnings growth for at least five years 369
Rule 2 Never pay more for a stock than can reasonably be justified by a firm foundation of value 369
Rule 3 It helps to buy stocks with the kinds of stories of anticipated growth on which investors can build castles in the air 370
Rule 4 Trade as little as possible 370
The Substitute-Player Step: Hiring a Professional Wall Street Walker 372
The Morningstar Mutual-Fund Information Service 374
A Primer on Mutual-Fund Costs 375
Loading Fees 378
Expense Charges 378
Comparing Mutual-Fund Costs 379
The Malkiel Step 380
A Paradox 383
Some Last Reflections on Our Walk 385
Supplement: How Pork Bellies Acquired an Ivy League Suit: A Primer on Derivatives 387
Appendix to Supplement: What Determines Prices in the Futures and Options Markets? 420
A Random Walker's Address Book and Reference Guide to Mutual Funds 425
Index 435
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Sort by: Showing all of 5 Customer Reviews
  • Posted March 16, 2013

    A must buy for anyone interested int the topic of investing, mon

    A must buy for anyone interested int the topic of investing, money, economics, business administration. A complete masterpiece, superb, better than even Joel Greenblatt's "How to become a stock market genius." A must buy, excellent-excellent book.

    2 out of 2 people found this review helpful.

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  • Anonymous

    Posted September 5, 2006

    The Davinci Code of Investing

    Burton G. Malkiel makes this book more interesting than a thriller. Giving the history, the practice and studies of investing methods and results, he blows away the smoke and shows what really matters and works on wall street. It isn't only a very interesting book to read, it's also a very good advice on investing that you can put into practice.

    2 out of 2 people found this review helpful.

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  • Anonymous

    Posted June 20, 2005

    Terrific book on investing!

    This is a great book on investing and personal finance. The book has several parts, the first few go into some history-such as the tulip bulb craze in Europe right on through the internet bubble of the late 90's. Through cogent examples he explains that human psychology plays an important role with respect to the market. There are numerous other variables that effect market returns (scandals such as Enron, and so forth) and Malkiel goes into great detail as to why he thinks the market is very efficient. The next sections deal with the various strategies and logic employed by the Wall Street professionals. He goes on to show that none of these ideas withstand the test of time (what works now, rarely works in the next time period). Finally he makes the case for indexing and he makes a few suggestions based on your capacity and tolerance for risk. All in all, I was very pleased with this book.

    2 out of 2 people found this review helpful.

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  • Anonymous

    Posted April 7, 2013

    A must read, packed full of lifelong lesson in regard to finance

    A must read, packed full of lifelong lesson in regard to finance.

    1 out of 1 people found this review helpful.

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  • Posted March 16, 2013

    Author is the most qualified in the world on the topic of invest

    Author is the most qualified in the world on the topic of investing, a great book.

    1 out of 1 people found this review helpful.

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