A Random Walk Down Wall Street
By: Burton Malkiel
"If you want a get-rich quick investment strategy, this is not the book for you. I'll leave that for the snake oil salesmen. You can only get poor quickly. To get rich, you will have to do it slowly, and you have to start now." ~ Burton Malkiel, A Random Walk Down Wall Street
A very practical book. This book combines lessons from history, economics, and psychology to help everyday people make smarter investment decisions and build wealth over the long term.
An all-time great investing book. There's so much investing advice in this book other than just buy an index fund and hold.
Topics Covered in A Random Walk Down Wall Street
- Stocks vs bonds
- Behavioral finance
- Speculative bubbles & crashes
- Modern portfolio theory
- Capital-Asset Pricing Model (CAPM)
- Beta & systemic risk
- Asset allocation
- Dollar cost averaging
"A random walk is one in which future steps or directions cannot be predicted on the basis of past history. When the term is applied to the stock market, it means that short-run changes in stock prices are unpredictable. Investment advisory services, earnings forecasts, and complicated chart patterns are useless. On Wall Street, the term "random walk" is an obscenity." ~ Burton Malkiel, A Random Walk Down Wall Street
"A Random Walk Down Wall Street" basically explains that nobody can predict stock prices in the short term, no matter how smart they are or what indicators and charts they use. The author, Burton Malkiel, shows how both technical analysis and fundamental analysis doesn’t really help people beat the market consistently. He tells interesting stories about market bubbles throughout history, from Dutch tulips to modern tech stocks, to show how people get caught up in investment crazes that eventually crash. If you're trying to outsmart the market, you might as well have a blindfolded monkey throwing darts at your stock choices.
Instead of trying to pick winning stocks, Malkiel recommends a simpler approach. He says markets are mostly "efficient," which means prices already reflect all the information that's out there, making it extremely hard to find bargains. His biggest advice is to invest in low-cost index funds that track the whole market, diversify your investments, and focus on long-term investing rather than trying to get rich quickly. This approach might seem boring, but it works best for most people.
What makes it so valuable is that it cuts through all the investment jargon and gives practical advice. The book has been updated many times since it first came out in 1973, and even though many people disagreed with Malkiel at first, most financial experts now accept that his simple approach to investing is one of the most reliable ways for people to build wealth over time.
When "A Random Walk Down Wall Street" was first published, index funds didn't even exist, and Malkiel's ideas were considered radical. Today, his approach is recognized as one of the most reliable paths to building wealth through investing. (For index fund investing, check out The Little Book of Common Sense Investing, by John Bogle)
Real Estate
There was a lot of practical investment advice in this book. There was a little section that focused on real estate that I really appreciated as someone that is trying to get into real estate investing. Malkiel explains how real estate can give an investor a better edge than the stock market because of the lack of competition to bid on a property:
"The real estate market is less efficient than the stock market. Hundreds of knowledgeable investors study the worth of every common stock. Only a handful of prospective buyers asses the worth of a particular real estate property. Hence, individual pieces of property are not always appropriately priced. Finally, real estate returns seem to be higher than stock returns during periods when inflation is accelerating, but do less well during periods of disinflation. In sum, real estate has proved to be a good investment providing generous returns and excellent inflation-hedging characteristics." ~ Burton Malkiel, A Random Walk Down Wall Street
My Thoughts
This is the kind of book I’d recommend to someone like my dad—someone who tunes into CNBC now and then, has a bit of extra money to invest, and buys stocks when the news sounds promising, but doesn’t really follow a clear strategy beyond "buy and hold.". It’s a very practical book full of solid investing strategies.
If you've made it this far, I recommend checking out my summary and review of The Most Important Thing by Howard Marks. It's one of my all-time favorite stock investing books.
