Library:A Random Walk Down Wall Street
| A Random Walk Down Wall Street | |
|---|---|
| Author | Burton G. Malkiel |
| First published | 1973 |
| ISBN | 978-0-393-06245-8 unverified |
| Role | Analysis |
| Domains | Business, Finance & Scams |
| Tactics | Statistical & Evidentiary Distortion |
A Random Walk Down Wall Street is a 1973 book by Burton G. Malkiel.
Summary
Burton Malkiel, an economist at Princeton University who had worked on Wall Street, first published this book in 1973 and has revised it many times since. It argues that stock prices largely follow a "random walk," moving unpredictably in response to new information, so that most attempts to predict them, whether by charting past prices or by picking stocks, fail to beat the market consistently. Its practical advice, to buy low-cost funds that track the whole market, helped popularize index investing.
The random walk
Malkiel explains the efficient market hypothesis, the idea that prices quickly reflect available information. If that is broadly true, then past price movements give little guide to future ones, and new information, which by definition cannot be predicted, drives changes. He famously suggested that a blindfolded monkey throwing darts at the financial pages could select a portfolio that would do just as well as one carefully chosen by experts.
Technical and fundamental analysis
The book examines the two main methods professionals use to pick investments. Technical analysis, or charting, looks for patterns in past prices; Malkiel argues that studies have found little evidence that such patterns predict future movements after costs. Fundamental analysis estimates a company's true value from its earnings and prospects; Malkiel concedes it has more logic behind it but argues that analysts' forecasts are often wrong and that any advantage is quickly competed away.
Bubbles and fads
Malkiel devotes chapters to speculative manias, from tulips and the South Sea Bubble to the "Nifty Fifty" stocks of the 1970s and, in later editions, the dot-com bubble and cryptocurrency. He acknowledges that markets can be irrational for long periods but argues that this does not make bubbles easy to profit from.
The evidence
Later editions cite data showing that most actively managed mutual funds underperform broad market index funds over long periods, after fees. Critics of the efficient market hypothesis, including behavioral economists, have documented anomalies, and Malkiel addresses them in successive editions while maintaining his core argument.
Relevance to Bullshitopedia
The book offers a data-driven antidote to the confident claims of stock pickers, chartists and market forecasters. It teaches readers to ask whether claimed investment skill survives careful comparison with simple, cheap alternatives.
Related entries
- Stratton Oakmont stock recommendations
- Bernie Madoff's steady returns
- Where Are the Customers' Yachts? (Schwed)
- Fooled by Randomness (Taleb)