Random Walk 9E Pa

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  • Edition: Revised
  • Format: Trade Paper
  • Copyright: 2007-12-17
  • Publisher: W W NORTON

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Whether you're considering your first 401(k) contribution, contemplating retirement, or anywhere in between, A Random Walk Down Wall Street should be the first book on your reading list. In this newest edition of the perennial bestseller, Burton G. Malkiel shows how to navigate the turbulence on Wall Street and beat the pros at their own game, giving individual investors the information, they need to manage their money with confidence. Book jacket.

Author Biography

Burton G. Malkiel is a former member of the Council of Economic Advisers and has served on the boards of several major corporations, including the Vanguard Group of Investment Companies and Prudential Financial Corporation

Table of Contents

Prefacep. 15
Acknowledgments from Earlier Editionsp. 19
Stocks and Their Value
Firm Foundations and Castles in the Airp. 23
What Is a Random Walk?p. 24
Investing as a Way of Life Todayp. 26
Investing in Theoryp. 28
The Firm-Foundation Theoryp. 28
The Castle-in-the-Air Theoryp. 30
How the Random Walk Is to Be Conductedp. 33
The Madness of Crowdsp. 34
The Tulip-Bulb Crazep. 35
The South Sea Bubblep. 38
Wall Street Lays an Eggp. 44
An Afterwordp. 51
Stock Valuation from the Sixties through the Ninetiesp. 52
The Sanity of Institutionsp. 52
The Soaring Sixtiesp. 53
The New "New Era": The Growth-Stock/New-Issue Crazep. 53
Synergy Generates Energy: The Conglomerate Boomp. 56
Performance Comes to the Market: The Bubble in Concept Stocksp. 63
The Sour Seventiesp. 66
The Nifty Fiftyp. 66
The Roaring Eightiesp. 68
The Triumphant Return of New Issuesp. 68
Concepts Conquer Again: The Biotechnology Bubblep. 70
ZZZZ Best Bubble of Allp. 71
What Does It All Mean?p. 73
The Nervy Ninetiesp. 74
The Japanese Yen for Land and Stocksp. 74
The Biggest Bubble of All: Surfing on the Internetp. 78
How Bubbles Arisep. 78
A Broad-Scale High-Tech Bubblep. 80
An Unprecedented New-Issue Crazep. 82
TheGlobe.comp. 84
Security Analysts $peak Upp. 86
New Valuation Metricsp. 87
The Writes of the Mediap. 89
Fraud Slithers In and Strangles the Marketp. 92
Should We Have Known the Dangers?p. 94
A Final Wordp. 96
How the Pros Play the Biggest Game in Town
Technical and Fundamental Analysisp. 99
Technical versus Fundamental Analysisp. 100
What Can Charts Tell You?p. 102
The Rationale for the Charting Methodp. 105
Why Might Charting Fail to Work?p. 107
From Chartist to Technicianp. 108
The Technique of Fundamental Analysisp. 109
Three Important Caveatsp. 117
Why Might Fundamental Analysis Fail to Work?p. 120
Using Fundamental and Technical Analysis Togetherp. 121
Technical Analysis and the Random-Walk Theoryp. 126
Holes in Their Shoes and Ambiguity in Their Forecastsp. 126
Is There Momentum in the Stock Market?p. 128
Just What Exactly Is a Random Walk?p. 129
Some More Elaborate Technical Systemsp. 133
The Filter Systemp. 133
The Dow Theoryp. 134
The Relative-Strength Systemp. 134
Price-Volume Systemsp. 135
Reading Chart Patternsp. 135
Randomness Is Hard to Acceptp. 136
A Gaggle of Other Technical Theories to Help You Lose Moneyp. 138
The Hemline Indicatorp. 138
The Super Bowl Indicatorp. 140
The Odd-Lot Theoryp. 140
A Few More Systemsp. 141
Technical Market Gurusp. 142
Why Are Technicians Still Hired?p. 144
Appraising the Counterattackp. 145
Implications for Investorsp. 148
How Good Is Fundamental Analysis?p. 150
The Views from Wall Street and Academiap. 151
Are Security Analysts Fundamentally Clairvoyant?p. 152
Why the Crystal Ball Is Cloudedp. 155
The Influence of Random Eventsp. 156
The Production of Dubious Reported Earnings through "Creative" Accounting Proceduresp. 156
The Basic Incompetence of Many of the Analysts Themselvesp. 159
The Loss of the Best Analysts to the Sales Desk, to Portfolio Management, or to Hedge Fundsp. 160
The Conflicts of Interest between Research and Investment Banking Departmentsp. 161
Do Security Analysts Pick Winners?-The Performance of the Mutual Fundsp. 164
Can Any Fundamental System Pick Winners?p. 170
The Verdict on Market Timingp. 171
The Semi-strong and Strong Forms of the Efficient-Market Theoryp. 172
The Middle of the Road: A Personal Viewpointp. 174
The New Investment Technology
A New Walking Shoe: Modern Portfolio Theoryp. 179
The Role of Riskp. 180
Defining Risk: The Dispersion of Returnsp. 181
Illustration: Expected Return and Variance Measures of Reward and Riskp. 181
Documenting Risk: A Long-Run Studyp. 184
Reducing Risk: Modern Portfolio Theory (MPT)p. 186
Diversification in Practicep. 190
Reaping Reward by Increasing Riskp. 197
Beta and Systematic Riskp. 198
The Capital-Asset Pricing Model (CAPM)p. 201
Let's Look at the Recordp. 206
An Appraisal of the Evidencep. 209
The Quant Quest for Better Measures of Risk: Arbitrage Pricing Theoryp. 211
A Summing Upp. 214
Behavioral Financep. 216
The Irrational Behavior of Individual Investorsp. 219
Overconfidencep. 219
Biased Judgmentsp. 222
Herdingp. 225
Loss Aversionp. 229
The Limits to Arbitragep. 233
What Are the Lessons for Investors from Behavioral Finance?p. 237
Avoid Herd Behaviorp. 238
Avoid Overtradingp. 240
If You Do Trade: Sell Losers, Not Winnersp. 241
Other Stupid Investor Tricksp. 242
Does Behavioral Finance Teach Ways to Beat the Market?p. 243
Potshots at the Efficient-Market Theory and Why They Missp. 244
What Do We Mean by Saying Markets Are Efficient?p. 246
Potshots That Completely Miss the Targetp. 247
Dogs of the Dowp. 247
January Effectp. 248
"Thank God It's Monday Afternoon" Patternp. 249
Hot News Responsep. 249
Why the Aim Is So Badp. 250
Potshots That Get Close but Still Miss the Targetp. 251
The Trend Is Your Mend (Otherwise Known as Short-Term Momentum) 251 The Dividend Jackpot Approachp. 253
The Initial P/E Predictorp. 255
The "Back We Go Again" Strategy (Otherwise Known as Long-Run Return Reversals)p. 256
The "Smaller Is Better" Effectp. 259
The "Value Will Win" Recordp. 261
Stacks with Low Price-Earnings Multiples Outperform Those with High Multiplesp. 262
Stocks That Sell at Low Multiples of Their Book Values Tend to Produce Higher Subsequent Returnsp. 263
But Does "Value" Really Trump Growth on a Consistent Basis?p. 264
Why Even Close Shots Missp. 265
And the Winner Is...p. 267
The Performance of Professional Investorsp. 267
A Summing Upp. 271
A Practical Guide for Random Walkers and Other Investors
A Fitness Manual for Random Walkersp. 277
Gather the Necessary Suppliesp. 278
Don't Be Caught Empty-Handed: Cover Yourself with Cash Resources and Insurancep. 280
Cash Reservesp. 280
Insurancep. 280
Deferred Variable Annuitiesp. 282
Be Competitive-Let the Yield on Your Cash
Reserve Keep Pace with Inflationp. 283
Money-Market Mutual Fundsp. 283
Bank Certificates of Deposit (CDs)p. 283
Internet Banksp. 284
Treasury Billsp. 285
Tax-Exempt Money-Market Fundsp. 285
Learn How to Dodge the Tax Collectorp. 286
Individual Retirement Accountsp. 286
Roth IRAsp. 288
Pension Plansp. 289
Saving for College: As Easy as 529p. 290
Make Sure the Shoe Fits: Understand Your Investment Objectivesp. 291
Begin Your Walk at Your Own Home-Renting Leads to Flabby Investment Musclesp. 298
Investigate a Promenade through Bond Countryp. 300
Zero-Coupon Bonds Can Generate Large Future Returnsp. 301
No-Load Bond Funds Are Appropriate Vehicles for Individual Investorsp. 302
Tax-Exempt Bonds Are Useful for High-Bracket Investorsp. 302
Hot Tips: Inflation-Indexed Bondsp. 304
Should You Be a Bond-Market Junkie?p. 305
Tiptoe through the Fields of Gold, Collectibles, and Other Investmentsp. 306
Remember That Commission Costs Are Not Random; Some Are Cheaper than Othersp. 308
Avoid Sinkholes and Stumbling Blocks: Diversify Your Investment Stepsp. 309
A Final Checkupp. 310
Handicapping the Financial Race: A Primer in Understanding and Projecting Returns from Stocks and Bondsp. 312
What Determines the Returns from Stocks and Bonds?p. 312
Three Eras of Financial Market Returnsp. 316
The Age of Comfortp. 317
The Age of Angstp. 319
The Age of Exuberancep. 323
The Age of the Millenniump. 325
A Life-Cycle Guide to Investingp. 329
Five Asset-Allocation Principlesp. 330
Risk and Reward Are Relatedp. 330
Your Actual Risk in Stock and Bond Investing Depends on the Length of Time You Hold Your Investmentp. 331
Dollar-Cost Averaging Can Reduce the Risks of Investing in Stocks and Bondsp. 334
Rebalancing Can Reduce Investment Risk and Possibly Increase Returnsp. 338
Distinguishing between Your Attitude toward and Your Capacity for Riskp. 340
Three Guidelines to Tailoring a Life-Cycle Investment Planp. 342
Specific Needs Require Dedicated Specific Assetsp. 342
Recognize Your Tolerance for Riskp. 343
Persistent Saving in Regular Amounts, No Matter How Small, Pays Offp. 343
The Life-Cycle Investment Guidep. 345
Life-Cycle Fundsp. 348
Investment Management Once You Have Retiredp. 349
Inadequate Preparation for Retirementp. 349
Investing a Retirement Nest Eggp. 350
Annuitiesp. 351
The Do-It-Yourself Methodp. 354
Three Giant Steps Down Wall Streetp. 357
The No-Brainer Step: Investing in Index Fundsp. 358
The Index-Fund Solution: A Summaryp. 360
A Broader Definition of Indexingp. 363
A Specific Index-Fund Portfoliop. 366
ETFs and the Tax-Managed Index Fundp. 367
The Do-It-Yourself Step: Potentially Useful Stock-Picking Rulesp. 369
Confine stock purchases to companies that appear able to sustain above-average earnings growth for at least five yearsp. 370
Never pay more for a stock than can reasonably be justified by a firm foundation of valuep. 370
It helps to buy stocks with the kinds of stories of anticipated growth on which investors can build castles in the airp. 371
Trade as little as possiblep. 372
The Substitute-Player Step: Hiring a Professional Wall Street Walkerp. 373
The Morningstar Mutual-Fund Information Servicep. 375
A Primer on Mutual-Fund Costsp. 376
Loading Feesp. 377
Expense Chargesp. 377
Turnover Costsp. 378
The 50-50 Rulep. 379
The Malkiel Stepp. 379
A Paradoxp. 383
Some Last Reflections on Our Walkp. 384
Supplement: How Pork Bellies Acquired an Ivy League Suit: A Primer on Derivativesp. 387
Appendix to Supplement: What Determines Prices in the Futures and Options Markets?p. 420
A Random Walker's Address Book and Reference Guide to Mutual Fundsp. 427
Indexp. 437
Table of Contents provided by Ingram. All Rights Reserved.

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