A Random Walk Down Wall Street The Time-Tested Strategy for Successful Investing

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  • Edition: 8th
  • Format: Hardcover
  • Copyright: 2003-04-17
  • Publisher: W. W. Norton & Company

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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, and 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. Malkiel shows how to analyze the potential returns, not only for stocks and bonds, but for the full range of investment opportunities, from money-market accounts and real estate investment trusts to insurance, home ownership, and tangible assets such as gold and collectibles. Whether you want to brief yourself on the ways of the market before talking to a broker or follow Malkiel's easy steps to managing your own portfolio, this books remains the best investing guide money can buy.

Author Biography

Burton G. Malkiel holds the Chemical Bank Chairman's Professorship at Princeton University.

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. 29
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. 57
Performance Comes to the Market: The Bubble in Concept Stocksp. 64
The Sour Seventiesp. 68
The Nifty Fiftyp. 68
The Roaring Eightiesp. 71
The Triumphant Return of New Issuesp. 71
Concepts Conquer Again: The Biotechnology Bubblep. 72
ZZZZ Best Bubble of Allp. 74
What Does It All Mean?p. 76
The Nervy Ninetiesp. 77
The Japanese Yen for Land and Stocksp. 77
The Biggest Bubble of All: Surfing on the Internetp. 82
How Bubbles Arisep. 82
A Broad-Scale High-Tech Bubblep. 84
An Unprecedented New-Issue Crazep. 87
TheGlobe.comp. 90
Security Analysts $peak Upp. 92
New Valuation Metricsp. 94
The Writes of the Mediap. 96
Fraud Slithers In and Strangles the Marketp. 98
Should We Have Known the Dangers?p. 101
A Final Wordp. 104
The Firm-Foundation Theory of Stock Pricesp. 105
The "Fundamental" Determinants of Stock Pricesp. 106
Two Important Caveatsp. 113
Testing the Rulesp. 116
One More Caveatp. 118
What's Left of the Firm Foundation?p. 119
How the Pros Play the Biggest Game in Town
Technical and Fundamental Analysisp. 125
Technical versus Fundamental Analysisp. 126
What Can Charts Tell You?p. 128
The Rationale for the Charting Methodp. 132
Why Might Charting Fail to Work?p. 134
From Chartist to Technicianp. 135
The Technique of Fundamental Analysisp. 136
Why Might Fundamental Analysis Fail to Work?p. 140
Using Fundamental and Technical Analysis Togetherp. 141
Technical Analysis and the Random-Walk Theoryp. 145
Holes in Their Shoes and Ambiguity in Their Forecastsp. 145
Is There Momentum in the Stock Market?p. 147
Just What Exactly Is a Random Walk?p. 148
Some More Elaborate Technical Systemsp. 152
The Filter Systemp. 152
The Dow Theoryp. 153
The Relative-Strength Systemp. 154
Price-Volume Systemsp. 154
Reading Chart Patternsp. 154
Randomness Is Hard to Acceptp. 156
A Gaggle of Other Technical Theories to Help You Lose Moneyp. 157
The Hemline Indicatorp. 157
The Super Bowl Indicatorp. 159
The Odd-Lot Theoryp. 160
A Few More Systemsp. 161
Technical Market Gurusp. 161
Why Are Technicians Still Hired?p. 165
Appraising the Counterattackp. 166
Implications for Investorsp. 169
How Good Is Fundamental Analysis?p. 171
The Views from Wall Street and Academiap. 172
Are Security Analysts Fundamentally Clairvoyant?p. 172
Why the Crystal Ball Is Cloudedp. 176
The Influence of Random Eventsp. 177
The Production of Dubious Reported Earnings through "Creative" Accounting Proceduresp. 178
The Basic Incompetence of Many of the Analysts Themselvesp. 181
The Loss of the Best Analysts to the Sales Desk or to Portfolio Managementp. 183
The Conflicts of Interest between Research and Investment Banking Departmentsp. 183
Do Security Analysts Pick Winners?--The Performance of the Mutual Fundsp. 186
Can Any Fundamental System Pick Winners?p. 192
The Verdict on Market Timingp. 193
The Semi-strong and Strong Forms of the Efficient-Market Theoryp. 196
The Middle of the Road: A Personal Viewpointp. 198
The New Investment Technology
A New Walking Shoe: Modern Portfolio Theoryp. 203
The Role of Riskp. 204
Defining Risk: The Dispersion of Returnsp. 205
Illustration: Expected Return and Variance Measures of Reward and Riskp. 205
Documenting Risk: A Long-Run Studyp. 208
Reducing Risk: Modern Portfolio Theory (MPT)p. 210
Diversification in Practicep. 214
Reaping Reward by Increasing Riskp. 222
Beta and Systematic Riskp. 223
The Capital-Asset Pricing Model (CAPM)p. 226
Let's Look at the Recordp. 231
An Appraisal of the Evidencep. 234
The Quant Quest for Better Measures of Risk: Arbitrage Pricing Theoryp. 236
A Summing Upp. 240
Potshots at the Efficient-Market Theory and Why They Missp. 242
What Do We Mean by Saying Markets Are Efficient?p. 244
Potshots That Completely Miss the Targetp. 246
Dogs of the Dowp. 246
January Effectp. 247
"Thank God It's Monday Afternoon" Patternp. 247
Hot News Responsep. 248
Why the Aim Is So Badp. 249
Potshots That Get Close but Still Miss the Targetp. 250
The Trend Is Your Friend (Otherwise Known as Short-Term Momentum)p. 250
The Dividend Jackpot Approachp. 252
The Initial P/E Predictorp. 254
The "Back We Go Again" Strategy (Otherwise Known as Long-Run Return Reversals)p. 255
The Smaller Is Better Effectp. 259
The "Value Will Win" Recordp. 261
Stocks with Low Price-Earnings Multiples Outperform Those with High Multiplesp. 261
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. 264
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
Cover Thyself with Protectionp. 278
Know Your Investment Objectivesp. 279
Dodge Uncle Sam Whenever You Canp. 287
Pension Plans and IRAsp. 287
Keogh Plansp. 288
Roth IRAsp. 290
Tax-Deferred Annuitiesp. 291
Saving for College: As Easy as 529p. 292
Be Competitive--Let the Yield on Your Cash Reserve Keep Pace with Inflationp. 293
Money-Market Mutual Fundsp. 293
Money-Market Deposit Accountsp. 294
Bank Certificatesp. 296
Tax-Exempt Money-Market Fundsp. 297
Investigate a Promenade through Bond Countryp. 297
Zero-Coupon Bonds Can Generate Large Future Returnsp. 299
No-Load Bond Funds Are Appropriate Vehicles for Individual Investorsp. 300
Tax-Exempt Bonds Are Useful for High-Bracket Investorsp. 301
Hot TIPS: Inflation-Indexed Bondsp. 303
Should You Be a Bond-Market Junkie?p. 304
Begin Your Walk at Your Own Home--Renting Leads to Flabby Investment Musclesp. 305
Beef Up with Real Estate Investment Trustsp. 306
Tiptoe through the Fields of Gold, Collectibles, and Other Investmentsp. 308
Remember That Commission Costs Are Not Random; Some Are Cheaper than Othersp. 311
Diversify Your Investment Stepsp. 312
A Final Checkupp. 313
Handicapping the Financial Race: A Primer in Understanding and Projecting Returns from Stocks and Bondsp. 314
What Determines the Returns from Stocks and Bonds?p. 314
Three Eras of Financial Market Returnsp. 319
The Age of Comfortp. 320
The Age of Angstp. 322
The Age of Exuberancep. 326
The Age of the Millenniump. 328
A Life-Cycle Guide to Investingp. 333
Four Asset-Allocation Principlesp. 334
Risk and Reward Are Relatedp. 334
Your Actual Risk in Stock and Bond Investing Depends on the Length of Time You Hold Your Investmentp. 335
Dollar-Cost Averaging Can Reduce the Risks of Investing in Stocks and Bondsp. 338
Distinguishing between Your Attitude toward and Your Capacity for Riskp. 342
Three Guidelines to Tailoring a Life-Cycle Investment Planp. 344
Specific Needs Require Dedicated Specific Assetsp. 344
Recognize Your Tolerance for Riskp. 345
Persistent Saving in Regular Amounts, No Matter How Small, Pays Offp. 348
The Life-Cycle Investment Guidep. 349
Three Giant Steps Down Wall Streetp. 354
The No-Brainer Step: Investing in Index Fundsp. 355
The Index-Fund Solution: A Summaryp. 357
A Broader Definition of Indexingp. 360
A Specific Index-Fund Portfoliop. 363
The Tax-Managed Index Fundp. 364
The Do-It-Yourself Step: Potentially Useful Stock-Picking Rulesp. 368
Confine stock purchases to companies that appear able to sustain above-average earnings growth for at least five yearsp. 369
Never pay more for a stock than can reasonably be justified by a firm foundation of valuep. 369
It helps to buy stocks with the kinds of stories of anticipated growth on which investors can build castles in the airp. 370
Trade as little as possiblep. 370
The Substitute-Player Step: Hiring a Professional Wall Street Walkerp. 372
The Morningstar Mutual-Fund Information Servicep. 374
A Primer on Mutual-Fund Costsp. 375
Loading Feesp. 378
Expense Chargesp. 378
Comparing Mutual-Fund Costsp. 379
The Malkiel Stepp. 380
A Paradoxp. 383
Some Last Reflections on Our Walkp. 385
A Random Walker's Address Book and Reference Guide to Mutual Fundsp. 387
Indexp. 397
Table of Contents provided by Rittenhouse. All Rights Reserved.

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