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

by Burton G. Malkiel
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

by Burton G. Malkiel

Paperback(Twelfth Edition)

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A Best Book For Investors Pick by the Wall Street Journal’s “Weekend Investor”

Whether you’re considering your first 401k contribution, contemplating retirement, or anywhere in between, A Random Walk Down Wall Street is the best investment guide money can buy. In this new edition, Burton G. Malkiel shares authoritative insights spanning the full range of investment opportunities—including valuable new material on cryptocurrencies like bitcoin, and “tax-loss harvesting”—to help you chart a calm course through the turbulent waters of today’s financial markets.

Product Details

ISBN-13: 9780393358384
Publisher: Norton, W. W. & Company, Inc.
Publication date: 01/14/2020
Edition description: Twelfth Edition
Pages: 480
Sales rank: 37,285
Product dimensions: 5.40(w) x 8.20(h) x 1.30(d)

About the Author

Burton G. Malkiel is the Chemical Bank Chairman’s Professor of Economics Emeritus at Princeton University. He is a former member of the president’s Council of Economic Advisers and dean of the Yale School of Management. He resides in New Jersey.

Table of Contents

Preface     15
Acknowledgments from Earlier Editions     19
Stocks and Their Value
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     28
The Castle-in-the-Air Theory     30
How the Random Walk Is to Be Conducted     33
The Madness of Crowds     34
The Tulip-Bulb Craze     35
The South Sea Bubble     38
Wall Street Lays an Egg     44
An Afterword     51
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     56
Performance Comes to the Market: The Bubble in Concept Stocks     63
The Sour Seventies     66
The Nifty Fifty     66
The Roaring Eighties     68
The Triumphant Return of New Issues     68
Concepts Conquer Again: The Biotechnology Bubble     70
ZZZZ Best Bubble of All     71
What Does It All Mean?     73
The Nervy Nineties     74
The Japanese Yen for Land and Stocks     74
The Biggest Bubble of All: Surfing on the Internet     78
How Bubbles Arise     78
A Broad-Scale High-Tech Bubble     80
An Unprecedented New-Issue Craze     82
TheGlobe.com     84
Security Analysts {dollar}peak Up     86
New Valuation Metrics     87
The Writes of the Media     89
Fraud Slithers In and Strangles the Market     92
Should We Have Known the Dangers?     94
A Final Word     96
How the Pros Play the Biggest Game in Town
Technical and Fundamental Analysis     99
Technical versus Fundamental Analysis     100
What Can Charts Tell You?     102
The Rationale for the Charting Method     105
Why Might Charting Fail to Work?     107
From Chartist to Technician     108
The Technique of Fundamental Analysis     109
Three Important Caveats     117
Why Might Fundamental Analysis Fail to Work?     120
Using Fundamental and Technical Analysis Together     121
Technical Analysis and the Random-Walk Theory      126
Holes in Their Shoes and Ambiguity in Their Forecasts     126
Is There Momentum in the Stock Market?     128
Just What Exactly Is a Random Walk?     129
Some More Elaborate Technical Systems     133
The Filter System     133
The Dow Theory     134
The Relative-Strength System     134
Price-Volume Systems     135
Reading Chart Patterns     135
Randomness Is Hard to Accept     136
A Gaggle of Other Technical Theories to Help You Lose Money     138
The Hemline Indicator     138
The Super Bowl Indicator     140
The Odd-Lot Theory     140
A Few More Systems     141
Technical Market Gurus     142
Why Are Technicians Still Hired?     144
Appraising the Counterattack     145
Implications for Investors     148
How Good Is Fundamental Analysis?     150
The Views from Wall Street and Academia     151
Are Security Analysts Fundamentally Clairvoyant?     152
Why the Crystal Ball Is Clouded     155
The Influence of Random Events     156
The Production of Dubious Reported Earnings through "Creative" Accounting Procedures      156
The Basic Incompetence of Many of the Analysts Themselves     159
The Loss of the Best Analysts to the Sales Desk, to Portfolio Management, or to Hedge Funds     160
The Conflicts of Interest between Research and Investment Banking Departments     161
Do Security Analysts Pick Winners?-The Performance of the Mutual Funds     164
Can Any Fundamental System Pick Winners?     170
The Verdict on Market Timing     171
The Semi-strong and Strong Forms of the Efficient-Market Theory     172
The Middle of the Road: A Personal Viewpoint     174
The New Investment Technology
A New Walking Shoe: Modern Portfolio Theory     179
The Role of Risk     180
Defining Risk: The Dispersion of Returns     181
Illustration: Expected Return and Variance Measures of Reward and Risk     181
Documenting Risk: A Long-Run Study     184
Reducing Risk: Modern Portfolio Theory (MPT)     186
Diversification in Practice     190
Reaping Reward by Increasing Risk     197
Beta and Systematic Risk     198
The Capital-Asset Pricing Model (CAPM)     201
Let's Look at the Record     206
An Appraisal of the Evidence     209
The Quant Quest for Better Measures of Risk: Arbitrage Pricing Theory     211
A Summing Up     214
Behavioral Finance     216
The Irrational Behavior of Individual Investors     219
Overconfidence     219
Biased Judgments     222
Herding     225
Loss Aversion     229
The Limits to Arbitrage     233
What Are the Lessons for Investors from Behavioral Finance?     237
Avoid Herd Behavior     238
Avoid Overtrading     240
If You Do Trade: Sell Losers, Not Winners     241
Other Stupid Investor Tricks     242
Does Behavioral Finance Teach Ways to Beat the Market?     243
Potshots at the Efficient-Market Theory and Why They Miss     244
What Do We Mean by Saying Markets Are Efficient?     246
Potshots That Completely Miss the Target     247
Dogs of the Dow     247
January Effect     248
"Thank God It's Monday Afternoon" Pattern     249
Hot News Response     249
Why the Aim Is So Bad     250
Potshots That Get Close but Still Miss the Target     251
The Trend Is Your Mend (Otherwise Known as Short-Term Momentum) 251 The Dividend Jackpot Approach     253
The Initial P/E Predictor     255
The "Back We Go Again" Strategy (Otherwise Known as Long-Run Return Reversals)     256
The "Smaller Is Better" Effect     259
The "Value Will Win" Record     261
Stacks with Low Price-Earnings Multiples Outperform Those with High Multiples     262
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     265
And the Winner Is...     267
The Performance of Professional Investors     267
A Summing Up     271
A Practical Guide for Random Walkers and Other Investors
A Fitness Manual for Random Walkers     277
Gather the Necessary Supplies     278
Don't Be Caught Empty-Handed: Cover Yourself with Cash Resources and Insurance     280
Cash Reserves     280
Insurance     280
Deferred Variable Annuities     282
Be Competitive-Let the Yield on Your Cash
Reserve Keep Pace with Inflation     283
Money-Market Mutual Funds     283
Bank Certificates of Deposit (CDs)     283
Internet Banks     284
Treasury Bills     285
Tax-Exempt Money-Market Funds     285
Learn How to Dodge the Tax Collector     286
Individual Retirement Accounts     286
Roth IRAs     288
Pension Plans     289
Saving for College: As Easy as 529     290
Make Sure the Shoe Fits: Understand Your Investment Objectives     291
Begin Your Walk at Your Own Home-Renting Leads to Flabby Investment Muscles     298
Investigate a Promenade through Bond Country     300
Zero-Coupon Bonds Can Generate Large Future Returns     301
No-Load Bond Funds Are Appropriate Vehicles for Individual Investors     302
Tax-Exempt Bonds Are Useful for High-Bracket Investors     302
Hot Tips: Inflation-Indexed Bonds     304
Should You Be a Bond-Market Junkie?     305
Tiptoe through the Fields of Gold, Collectibles, and Other Investments     306
Remember That Commission Costs Are Not Random; Some Are Cheaper than Others     308
Avoid Sinkholes and Stumbling Blocks: Diversify Your Investment Steps     309
A Final Checkup     310
Handicapping the Financial Race: A Primer in Understanding and Projecting Returns from Stocks and Bonds     312
What Determines the Returns from Stocks and Bonds?     312
Three Eras of Financial Market Returns      316
The Age of Comfort     317
The Age of Angst     319
The Age of Exuberance     323
The Age of the Millennium     325
A Life-Cycle Guide to Investing     329
Five Asset-Allocation Principles     330
Risk and Reward Are Related     330
Your Actual Risk in Stock and Bond Investing Depends on the Length of Time You Hold Your Investment     331
Dollar-Cost Averaging Can Reduce the Risks of Investing in Stocks and Bonds     334
Rebalancing Can Reduce Investment Risk and Possibly Increase Returns     338
Distinguishing between Your Attitude toward and Your Capacity for Risk     340
Three Guidelines to Tailoring a Life-Cycle Investment Plan     342
Specific Needs Require Dedicated Specific Assets     342
Recognize Your Tolerance for Risk     343
Persistent Saving in Regular Amounts, No Matter How Small, Pays Off     343
The Life-Cycle Investment Guide     345
Life-Cycle Funds     348
Investment Management Once You Have Retired     349
Inadequate Preparation for Retirement     349
Investing a Retirement Nest Egg     350
Annuities     351
The Do-It-Yourself Method      354
Three Giant Steps Down Wall Street     357
The No-Brainer Step: Investing in Index Funds     358
The Index-Fund Solution: A Summary     360
A Broader Definition of Indexing     363
A Specific Index-Fund Portfolio     366
ETFs and the Tax-Managed Index Fund     367
The Do-It-Yourself Step: Potentially Useful Stock-Picking Rules     369
Confine stock purchases to companies that appear able to sustain above-average earnings growth for at least five years     370
Never pay more for a stock than can reasonably be justified by a firm foundation of value     370
It helps to buy stocks with the kinds of stories of anticipated growth on which investors can build castles in the air     371
Trade as little as possible     372
The Substitute-Player Step: Hiring a Professional Wall Street Walker     373
The Morningstar Mutual-Fund Information Service     375
A Primer on Mutual-Fund Costs     376
Loading Fees     377
Expense Charges     377
Turnover Costs     378
The 50-50 Rule     379
The Malkiel Step     379
A Paradox     383
Some Last Reflections on Our Walk     384
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     427
Index     437
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