Book Review: A Random Walk Down Wall Street by Burton G. Malkiel
March 2, 2023
Last fall, I completed one item on my to-do list by becoming an Adjunct Professor at Golden Gate University, teaching a Personal Investment Management course. I was asked if there was a textbook that we used. As part of the must read, I am using the book first published in 1975. A Random Walk Down Wall Street by Burton G. MalkielThe Economist at Princeton University, revised and updated, is now 13th This year’s edition.
I use this book in my classes to understand the history of markets and theories such as the efficient market hypothesis, capital asset market theory, fundamental analysis, and technical analysis. But while this is a must-read for those in the financial industry, it’s also an excellent primer for anyone wanting to understand more about investing in their portfolio.
When Malkiel describes the “random walk”, he says that using chart patterns, earnings forecasts, or using investment advisors is useless because short-term changes in the market are unpredictable. Analysis does not help predict future stock prices. He said investors could very easily buy passive, low-cost, tax-efficient, broad-based index funds rather than trying to beat the market by trading individual stocks or actively managed funds. He states that he believes it is much better to buy and keep.
If you’re just learning about investing, be sure to check out Part 4, A Practical Guide for Random Walkers and Other Investors. Here you will not only be provided with explanations of asset allocation, diversification and risk tolerance, but also practical financial advice.
Emphasis is placed on the relationship between risk and reward and the importance of determining the degree of risk. Malkiel uses a sleeping scale of major investments that outlines which investments are most suitable, asking each investor to understand the following trade-offs: eat well again sleep wellOnly you, the investor, can choose the balance between high returns and peace of mind.
This book does not offer a get-rich-quick investment strategy, but it is an excellent guide to becoming a smart investor and hopefully helps you make good investment decisions.