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

by Malkiel, Burton G.

• ISBN13: 9780393057829
• ISBN10: 0393057828
• Edition: 8th
• Format: Hardcover
• Copyright: 2003-04-17
• Publisher: W. W. Norton & Company

Summary

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

Preface	p. 15
Acknowledgments from Earlier Editions	p. 19
Stocks and Their Value
Firm Foundations and Castles in the Air	p. 23
What Is a Random Walk?	p. 24
Investing as a Way of Life Today	p. 26
Investing in Theory	p. 28
The Firm-Foundation Theory	p. 29
The Castle-in-the-Air Theory	p. 30
How the Random Walk Is to Be Conducted	p. 33
The Madness of Crowds	p. 34
The Tulip-Bulb Craze	p. 35
The South Sea Bubble	p. 38
Wall Street Lays an Egg	p. 44
An Afterword	p. 51
Stock Valuation from the Sixties through the Nineties	p. 52
The Sanity of Institutions	p. 52
The Soaring Sixties	p. 53
The New "New Era": The Growth-Stock/New-Issue Craze	p. 53
Synergy Generates Energy: The Conglomerate Boom	p. 57
Performance Comes to the Market: The Bubble in Concept Stocks	p. 64
The Sour Seventies	p. 68
The Nifty Fifty	p. 68
The Roaring Eighties	p. 71
The Triumphant Return of New Issues	p. 71
Concepts Conquer Again: The Biotechnology Bubble	p. 72
ZZZZ Best Bubble of All	p. 74
What Does It All Mean?	p. 76
The Nervy Nineties	p. 77
The Japanese Yen for Land and Stocks	p. 77
The Biggest Bubble of All: Surfing on the Internet	p. 82
How Bubbles Arise	p. 82
A Broad-Scale High-Tech Bubble	p. 84
An Unprecedented New-Issue Craze	p. 87
TheGlobe.com	p. 90
Security Analysts $peak Up	p. 92
New Valuation Metrics	p. 94
The Writes of the Media	p. 96
Fraud Slithers In and Strangles the Market	p. 98
Should We Have Known the Dangers?	p. 101
A Final Word	p. 104
The Firm-Foundation Theory of Stock Prices	p. 105
The "Fundamental" Determinants of Stock Prices	p. 106
Two Important Caveats	p. 113
Testing the Rules	p. 116
One More Caveat	p. 118
What's Left of the Firm Foundation?	p. 119
How the Pros Play the Biggest Game in Town
Technical and Fundamental Analysis	p. 125
Technical versus Fundamental Analysis	p. 126
What Can Charts Tell You?	p. 128
The Rationale for the Charting Method	p. 132
Why Might Charting Fail to Work?	p. 134
From Chartist to Technician	p. 135
The Technique of Fundamental Analysis	p. 136
Why Might Fundamental Analysis Fail to Work?	p. 140
Using Fundamental and Technical Analysis Together	p. 141
Technical Analysis and the Random-Walk Theory	p. 145
Holes in Their Shoes and Ambiguity in Their Forecasts	p. 145
Is There Momentum in the Stock Market?	p. 147
Just What Exactly Is a Random Walk?	p. 148
Some More Elaborate Technical Systems	p. 152
The Filter System	p. 152
The Dow Theory	p. 153
The Relative-Strength System	p. 154
Price-Volume Systems	p. 154
Reading Chart Patterns	p. 154
Randomness Is Hard to Accept	p. 156
A Gaggle of Other Technical Theories to Help You Lose Money	p. 157
The Hemline Indicator	p. 157
The Super Bowl Indicator	p. 159
The Odd-Lot Theory	p. 160
A Few More Systems	p. 161
Technical Market Gurus	p. 161
Why Are Technicians Still Hired?	p. 165
Appraising the Counterattack	p. 166
Implications for Investors	p. 169
How Good Is Fundamental Analysis?	p. 171
The Views from Wall Street and Academia	p. 172
Are Security Analysts Fundamentally Clairvoyant?	p. 172
Why the Crystal Ball Is Clouded	p. 176
The Influence of Random Events	p. 177
The Production of Dubious Reported Earnings through "Creative" Accounting Procedures	p. 178
The Basic Incompetence of Many of the Analysts Themselves	p. 181
The Loss of the Best Analysts to the Sales Desk or to Portfolio Management	p. 183
The Conflicts of Interest between Research and Investment Banking Departments	p. 183
Do Security Analysts Pick Winners?--The Performance of the Mutual Funds	p. 186
Can Any Fundamental System Pick Winners?	p. 192
The Verdict on Market Timing	p. 193
The Semi-strong and Strong Forms of the Efficient-Market Theory	p. 196
The Middle of the Road: A Personal Viewpoint	p. 198
The New Investment Technology
A New Walking Shoe: Modern Portfolio Theory	p. 203
The Role of Risk	p. 204
Defining Risk: The Dispersion of Returns	p. 205
Illustration: Expected Return and Variance Measures of Reward and Risk	p. 205
Documenting Risk: A Long-Run Study	p. 208
Reducing Risk: Modern Portfolio Theory (MPT)	p. 210
Diversification in Practice	p. 214
Reaping Reward by Increasing Risk	p. 222
Beta and Systematic Risk	p. 223
The Capital-Asset Pricing Model (CAPM)	p. 226
Let's Look at the Record	p. 231
An Appraisal of the Evidence	p. 234
The Quant Quest for Better Measures of Risk: Arbitrage Pricing Theory	p. 236
A Summing Up	p. 240
Potshots at the Efficient-Market Theory and Why They Miss	p. 242
What Do We Mean by Saying Markets Are Efficient?	p. 244
Potshots That Completely Miss the Target	p. 246
Dogs of the Dow	p. 246
January Effect	p. 247
"Thank God It's Monday Afternoon" Pattern	p. 247
Hot News Response	p. 248
Why the Aim Is So Bad	p. 249
Potshots That Get Close but Still Miss the Target	p. 250
The Trend Is Your Friend (Otherwise Known as Short-Term Momentum)	p. 250
The Dividend Jackpot Approach	p. 252
The Initial P/E Predictor	p. 254
The "Back We Go Again" Strategy (Otherwise Known as Long-Run Return Reversals)	p. 255
The Smaller Is Better Effect	p. 259
The "Value Will Win" Record	p. 261
Stocks with Low Price-Earnings Multiples Outperform Those with High Multiples	p. 261
Stocks That Sell at Low Multiples of Their Book Values Tend to Produce Higher Subsequent Returns	p. 263
But Does "Value" Really Trump Growth on a Consistent Basis?	p. 264
Why Even Close Shots Miss	p. 264
And the Winner Is...	p. 267
The Performance of Professional Investors	p. 267
A Summing Up	p. 271
A Practical Guide for Random Walkers and Other Investors
A Fitness Manual for Random Walkers	p. 277
Cover Thyself with Protection	p. 278
Know Your Investment Objectives	p. 279
Dodge Uncle Sam Whenever You Can	p. 287
Pension Plans and IRAs	p. 287
Keogh Plans	p. 288
Roth IRAs	p. 290
Tax-Deferred Annuities	p. 291
Saving for College: As Easy as 529	p. 292
Be Competitive--Let the Yield on Your Cash Reserve Keep Pace with Inflation	p. 293
Money-Market Mutual Funds	p. 293
Money-Market Deposit Accounts	p. 294
Bank Certificates	p. 296
Tax-Exempt Money-Market Funds	p. 297
Investigate a Promenade through Bond Country	p. 297
Zero-Coupon Bonds Can Generate Large Future Returns	p. 299
No-Load Bond Funds Are Appropriate Vehicles for Individual Investors	p. 300
Tax-Exempt Bonds Are Useful for High-Bracket Investors	p. 301
Hot TIPS: Inflation-Indexed Bonds	p. 303
Should You Be a Bond-Market Junkie?	p. 304
Begin Your Walk at Your Own Home--Renting Leads to Flabby Investment Muscles	p. 305
Beef Up with Real Estate Investment Trusts	p. 306
Tiptoe through the Fields of Gold, Collectibles, and Other Investments	p. 308
Remember That Commission Costs Are Not Random; Some Are Cheaper than Others	p. 311
Diversify Your Investment Steps	p. 312
A Final Checkup	p. 313
Handicapping the Financial Race: A Primer in Understanding and Projecting Returns from Stocks and Bonds	p. 314
What Determines the Returns from Stocks and Bonds?	p. 314
Three Eras of Financial Market Returns	p. 319
The Age of Comfort	p. 320
The Age of Angst	p. 322
The Age of Exuberance	p. 326
The Age of the Millennium	p. 328
A Life-Cycle Guide to Investing	p. 333
Four Asset-Allocation Principles	p. 334
Risk and Reward Are Related	p. 334
Your Actual Risk in Stock and Bond Investing Depends on the Length of Time You Hold Your Investment	p. 335
Dollar-Cost Averaging Can Reduce the Risks of Investing in Stocks and Bonds	p. 338
Distinguishing between Your Attitude toward and Your Capacity for Risk	p. 342
Three Guidelines to Tailoring a Life-Cycle Investment Plan	p. 344
Specific Needs Require Dedicated Specific Assets	p. 344
Recognize Your Tolerance for Risk	p. 345
Persistent Saving in Regular Amounts, No Matter How Small, Pays Off	p. 348
The Life-Cycle Investment Guide	p. 349
Three Giant Steps Down Wall Street	p. 354
The No-Brainer Step: Investing in Index Funds	p. 355
The Index-Fund Solution: A Summary	p. 357
A Broader Definition of Indexing	p. 360
A Specific Index-Fund Portfolio	p. 363
The Tax-Managed Index Fund	p. 364
The Do-It-Yourself Step: Potentially Useful Stock-Picking Rules	p. 368
Confine stock purchases to companies that appear able to sustain above-average earnings growth for at least five years	p. 369
Never pay more for a stock than can reasonably be justified by a firm foundation of value	p. 369
It helps to buy stocks with the kinds of stories of anticipated growth on which investors can build castles in the air	p. 370
Trade as little as possible	p. 370
The Substitute-Player Step: Hiring a Professional Wall Street Walker	p. 372
The Morningstar Mutual-Fund Information Service	p. 374
A Primer on Mutual-Fund Costs	p. 375
Loading Fees	p. 378
Expense Charges	p. 378
Comparing Mutual-Fund Costs	p. 379
The Malkiel Step	p. 380
A Paradox	p. 383
Some Last Reflections on Our Walk	p. 385
A Random Walker's Address Book and Reference Guide to Mutual Funds	p. 387
Index	p. 397
Table of Contents provided by Rittenhouse. All Rights Reserved.