Malkiels "Random Walk Guide"

[popniklas]

Hi. I am reading "A Random Walk Down Wall Street" by Burton G. Malkiel right now and so far I have found it to be very interesting.

Is "The Randow Walk Guide to Investing" worth the buy if you already own the above title or is it just a simplified version that won't give you anything new? Thankful for answers.

[eastbay]

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Hi. I am reading "A Random Walk Down Wall Street" by Burton G. Malkiel right now and so far I have found it to be very interesting.


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It is interesting, but also wrong.

Start here for the counter-argument.

http://www.pupress.princeton.edu/books/lo/

This is not a "pop" book, but is worth reading anyway if you have any kind of mathematical background.

eastbay

[edtost]

[ QUOTE ]
[ QUOTE ]
Hi. I am reading "A Random Walk Down Wall Street" by Burton G. Malkiel right now and so far I have found it to be very interesting.


[/ QUOTE ]

It is interesting, but also wrong.

Start here for the counter-argument.

http://www.pupress.princeton.edu/books/lo/

This is not a "pop" book, but is worth reading anyway if you have any kind of mathematical background.

eastbay

[/ QUOTE ]

i used to be a staunch malkiel hater until i started doing research into transactions costs ... he seems to consider their impact on actual portfolio returns more than his detractors. Note that "random walk" doesn't aggree with the strictest version of the efficient markets hypothesis, but supports the hypothesis that beating the market is very hard to do and unlikely to be achieved by the average investor. From a paper co-written by one of the authors of your book:

"Such costs – often called ‘execution costs’ because they are associated with the execution of investment strategies – include commissions, bid/ask spreads, opportunity costs of waiting, and price impact from trading (see Loeb, 1983 and Wagner, 1993 for further discussion), and they can have a substantial impact on investment performance. For example, Perold (1988) observes that a hypothetical or ‘paper’ portfolio constructed according to the Value Line rankings outperforms the market by almost 20% per year during the period from 1965 to 1986, whereas the actual portfolio – the Value Line Fund – outperformed the market by only 2.5% per year, the difference arising from execution costs. This 'implementation shortfall’ is surprisingly large and underscores the importance of execution-cost control, particularly for institutional investors whose trades often comprise a large fraction of the average daily volume of many stocks." (Bertsimas, D. & Lo, A. W. (1998), ‘Optimal control of execution costs’, Journal of Financial Markets pp. 1–50.)

[eastbay]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Hi. I am reading "A Random Walk Down Wall Street" by Burton G. Malkiel right now and so far I have found it to be very interesting.


[/ QUOTE ]

It is interesting, but also wrong.

Start here for the counter-argument.

http://www.pupress.princeton.edu/books/lo/

This is not a "pop" book, but is worth reading anyway if you have any kind of mathematical background.

eastbay

[/ QUOTE ]

i used to be a staunch malkiel hater until i started doing research into transactions costs ... he seems to consider their impact on actual portfolio returns more than his detractors. Note that "random walk" doesn't aggree with the strictest version of the efficient markets hypothesis, but supports the hypothesis that beating the market is very hard to do and unlikely to be achieved by the average investor.

[/ QUOTE ]

Random Walk makes the mistake of assuming because some very large fraction of technical analysis is faulty and "economically insignificant" that all of it is, and therefore such methods are economically insignificant. This is simply false, transaction costs included.

eastbay

[popniklas]

Well, I surely don't know whether Malkiel is right or wrong. Either way, it's a very interesting read. And he argues rather convincingly, showing lots of scientific data supporting his view of the market. But I'm sure there are counter-arguments worthy of consideration as well.

Intuitively, it seems to me that markets are MORE OR LESS efficient. For example, a thoroughly analysed market might be more efficient than one that isn't. (I guess this also applies to specific stocks, small cap stocks beiing less efficient.)

I don't believe that the stock market is completely random. Neither does Malkiel, although one might get that impression from the title. To me it seems likely that it is possible to beat the market, but it also seems likely that neither fundamental nor technical analysis is all it is cracked up to be. And that short-term trading generally is worse than buy-and-hold strategies and that index funds are the best "core" in a portfolio for most people.

Then again, I'm just guessing... I don't know very much about stocks and investments, but I'm trying to learn. [img]/images/graemlins/smirk.gif[/img]