Jack’s review of A Random Walk Down Wall Street > Likes and Comments
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The point of the book is that you are not Warren Buffet. If you are Warren Buffet, follow Ben Graham and conquer the world. But the sooner you realize you are not Warren Buffet, the sooner you will quit wasting time, money and attention on things beyond your control. You will be happier, less stressed, and, most likely, richer. But hey, if you have inside information, as, e.g., Congress does, go ahead and trade on it.
You are pointing to a different issue: Is it better not to tell the truth at all time? That is a slippery slope.
Be aware that many people in power also believe the thesis put forward in Malkiel's book. So if the banks are willing to pay so much for mortgage-backed securities then that must be their correct price. Much evil has come from the efficient market hypothesis
Good to know some one else is sane here, if markets were as efficient as orthodox opinion is. How does one explain hedge funds, value investors and others that out-perform the markets?
The term random walk is more suitable to describe the efficiency of the market, not the market itself. Sometimes the market is so efficient that prices are fully reflect intrinsic value, other times it is not. Adapting to the market is the key. Keep the flexibility to change your portfolio if needed.
Thanks for the honest analysis and alternative recommendation.
This is a bit one sided.
The author acknowledges that markets can be inefficient at times, but that systematically capitalizing on those inefficiencies is nearly impossible.
The author recommends purchasing LOW COST index funds, so though he mentions them, your 1-3% cost ramble is unjustified. That said, this could be a relic from an older version of the book when ETFs were less prevalent.
I've done many courses in finance (some taught by the multi-phd holding academics that are indeed peddling information and strategies to Wallstreet), and it's my opinion that this book is spot on.
Excellent review. Thank you for the book recommendations as well.
For the average investor, the "efficient market" still is a highly useful model for understanding the stock market. Most of the exploitation of the efficient market, as you mentioned, are done by hedge funds with massive amounts of either non-public information (see the SEC attacks on Steven Cohen) or technological investments. None of these factors apply to your average investor.
The fact still remains that most retail investors do not have the expertise nor time to "beat the market". In addition, most active funds (most retail investors have little access to hedge funds and alternative investment vehicles) find it difficult to consistently beat the market -- whether due to EMH or other reasons. Therefore, it remains that the index funds are the best solution to the average retail investor.
I can't really tell if you've read the updated version. He tells you specifically to avoid management fees. He says to buy the market in diversified index funds to meet or beat the market as active managers have a hard time doing so over time. I heard authority and not condescension... oh well. It is worth reading and thinking about his asset allocation models (graphics on p. 368-369). I guess you should stop reading new editions.
Markets are both rational and irrational like humans.
1-3% fee on index funds? wow no wonder you are angry. Vanguard offers a number of funds with fees as low as 0.05%
Im still getting my final views polished on the topic, but for your avrage investor (a worker with no interest in the stock market who needs to set up a 401k) the advice in the book is pretty good. Investing in low fee, low risk, benchmark yeilding, passively managed index funds is the best thing they can do to protect themselves from unnecessary risks and high fees.
My current take is that if you can do the work yourself (securitys analysis) that you can consistently get better returns, but its rather hard.
I relate to your criticism of the efficient market theory. One of my last books (how markets fail) tried to throw a wrench in the idea, and most of the books you listed are on my current reading list (the ones that where not now are now, appreciate that btw).
maybe Jack would like Russia, Cuba. or Venezuela!
There is a behavioral finance section which he mentions uproots the efficient market hypothesis. Malkiel is presenting multiple theories and the data behind them, he’s not advocating heavily for one or another. Think for yourself about what he’s saying. Either way, a buy and hold strategy is most effective, advice he repeatedly mentions throughout the book, as both behavioral finance and the efficient market hypothesis show that the more people trade, the less money they receive in the long run.
im not sure you read the book... he explicitly states he does NOT believe in the strong view of efficient markets, and instead believes in the weak or semi-strong view, both of which admit plenty of inefficiency. He also dedicates a decent portion of the book to "castles in the sky" which are an explanation of irrationality in the market that causes bubbles. When he says it is efficient what he really means is that it DOES course correct, and those corrections are as unpredictable as humans. He's basically discussing behavioral economics without using the word. it saddens me that people may have missed out on incredibly sound investment advice due to your unfairly negative review.
Jack, thanks for your review. When I do a review of one of my team, after starting any shortcomings, I offer advice on a corrective action. Thanks for tearing down the book and bringing to the surface, its many shortcomings. It is apparent that you have alternative options and obviously have done well by taking advantage of the market inefficiencies. Would you mind sharing your improvements upon the text and how you’ve completed financial arbitrage of the inefficient markets in a way that we all can benefit? Thanks
You are confused about what Karl Popper has written. Popper asserts that a scientific theory should be falsifiable; that is not the same thing as stating that you must always "test the opposite".
What you may be thinking of is the "Reductio ad absurdum" argument, which in assuming that an opposite is true, leads to an illogical conclusion, a technique often used in mathematics. In the latter case this is "proof by contradiction".
In neither case is Malkiel probably deficient for his assertions.
I couldn't disagree more with your review. First off, you don't seem to understand what EMH is. It doesn't mean that the market is always correctly valued or that there are no bubbles! Its main thesis is as well established as the fact that the earth is round and revolves on its axis. This book explains this with facts and data and addresses Fox, Montier and Schiller's views very explicitly. ALL the evidence shows that no one can pick stocks or time the market, but be my guest if you want to try. I have made lots of money over the last 3 years with a diversified portfolio of low cost mutual funds. If you want to try to beat the market (something only 1/3 of investment professionals manage to do - and its a different 1/3 every year) you are not likely to succeed. The same principles of investing have applied for the last 400 years.
Thanks for the review. Can you suggest some books you liked?
I read the book and I'm at a loss with your review…
Nowhere in the book the author says the market is always efficient. What the author says is that that market eventually corrects any inefficiencies that might exist (i.e. the correction in the early 2000s). Besides that, as a previous commenter pointed out, he also states (while backed by historical evidence) that is almost impossible to beat the markets.
In fact, this book was largely responsible for me to then read Shiller's Irrational Exuberance, which is quite interesting but has no actual advice you can follow through on.
Also, nowhere in the book he talks about mutual funds with 1-3% management fees; those are actively managed, which is the exact thing Burton speaks against. The passive mutual funds or ETFs that the author proposes have fees around 0.05%-0.2%.
Awful review. Have you taken a glance at the performance of hedge funds against the S&P500 for literally any prolonged period of time before writing your point about how their managers try to "exploit anomalies in the market"? Only a minority of hedge funds set out to beat the broader market. And an even smaller minority is able to succeed at it, albeit with a significant amount of luck involved. The majority of hedge fund managers actually BELIEVE in efficient markets THEMSELVES! Their product is aimed at HEDGING their customers' funds against losses, i.e., recessions, that statistically hit the S&P500 harder than they do the average hedge fund, hence their title.
Poor Jack. Perhaps your own bias made it difficult for you to clearly understand the key elements of this book. I have not only quoted from it regularly, but I've altered my own investment strategy. I followed the advice of simply investing in the boring old S&P 500 via a very low-cost ETF. AND THEN I HOLD. Even with the recent down-turn in US equities, The S&P is up 225% since you wrote your review (10 years ago). And that doesn't include a ~2% annual (dividend) yield. My guess is you just couldn't weather a short-term downturn and you sold at a loss. Don't blame Malkiel. The fault is yours.
Guys please don't take this review seriously and read this book yourself. This is one of the best books I've read on stock market.
I need someone to guide me how to trade have lost all my money in trading and am not ready to give up
Interesting review man. I read this as a complete investment noob but like your points and hope to read more about this subject.
This certainly aged like milk. You wrote this some 13 years ago -- how would you say someone who bought a low overhead index-fund 13 years ago would've done? (those don't cost 1-3% in management-fees per year by the way, but instead approximately 1/10th of that)
Funny seeing this absurdly pessimistic review and comparing it to the last 12 years of market performance. If you bought an SP500 index you’d be up 285% from the capital gains alone, not even including the mountains of dividends you’d realize!
Do you disagree with his view that most people should use index funds instead of buying individual stocks?
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The point of the book is that you are not Warren Buffet. If you are Warren Buffet, follow Ben Graham and conquer the world. But the sooner you realize you are not Warren Buffet, the sooner you will quit wasting time, money and attention on things beyond your control. You will be happier, less stressed, and, most likely, richer. But hey, if you have inside information, as, e.g., Congress does, go ahead and trade on it.
You are pointing to a different issue: Is it better not to tell the truth at all time? That is a slippery slope.Be aware that many people in power also believe the thesis put forward in Malkiel's book. So if the banks are willing to pay so much for mortgage-backed securities then that must be their correct price. Much evil has come from the efficient market hypothesis
Good to know some one else is sane here, if markets were as efficient as orthodox opinion is. How does one explain hedge funds, value investors and others that out-perform the markets?
The term random walk is more suitable to describe the efficiency of the market, not the market itself. Sometimes the market is so efficient that prices are fully reflect intrinsic value, other times it is not. Adapting to the market is the key. Keep the flexibility to change your portfolio if needed.
Thanks for the honest analysis and alternative recommendation.
This is a bit one sided. The author acknowledges that markets can be inefficient at times, but that systematically capitalizing on those inefficiencies is nearly impossible.
The author recommends purchasing LOW COST index funds, so though he mentions them, your 1-3% cost ramble is unjustified. That said, this could be a relic from an older version of the book when ETFs were less prevalent.
I've done many courses in finance (some taught by the multi-phd holding academics that are indeed peddling information and strategies to Wallstreet), and it's my opinion that this book is spot on.
Excellent review. Thank you for the book recommendations as well.
For the average investor, the "efficient market" still is a highly useful model for understanding the stock market. Most of the exploitation of the efficient market, as you mentioned, are done by hedge funds with massive amounts of either non-public information (see the SEC attacks on Steven Cohen) or technological investments. None of these factors apply to your average investor. The fact still remains that most retail investors do not have the expertise nor time to "beat the market". In addition, most active funds (most retail investors have little access to hedge funds and alternative investment vehicles) find it difficult to consistently beat the market -- whether due to EMH or other reasons. Therefore, it remains that the index funds are the best solution to the average retail investor.
I can't really tell if you've read the updated version. He tells you specifically to avoid management fees. He says to buy the market in diversified index funds to meet or beat the market as active managers have a hard time doing so over time. I heard authority and not condescension... oh well. It is worth reading and thinking about his asset allocation models (graphics on p. 368-369). I guess you should stop reading new editions.
Markets are both rational and irrational like humans.
1-3% fee on index funds? wow no wonder you are angry. Vanguard offers a number of funds with fees as low as 0.05%
Im still getting my final views polished on the topic, but for your avrage investor (a worker with no interest in the stock market who needs to set up a 401k) the advice in the book is pretty good. Investing in low fee, low risk, benchmark yeilding, passively managed index funds is the best thing they can do to protect themselves from unnecessary risks and high fees.My current take is that if you can do the work yourself (securitys analysis) that you can consistently get better returns, but its rather hard.
I relate to your criticism of the efficient market theory. One of my last books (how markets fail) tried to throw a wrench in the idea, and most of the books you listed are on my current reading list (the ones that where not now are now, appreciate that btw).
maybe Jack would like Russia, Cuba. or Venezuela!
There is a behavioral finance section which he mentions uproots the efficient market hypothesis. Malkiel is presenting multiple theories and the data behind them, he’s not advocating heavily for one or another. Think for yourself about what he’s saying. Either way, a buy and hold strategy is most effective, advice he repeatedly mentions throughout the book, as both behavioral finance and the efficient market hypothesis show that the more people trade, the less money they receive in the long run.
im not sure you read the book... he explicitly states he does NOT believe in the strong view of efficient markets, and instead believes in the weak or semi-strong view, both of which admit plenty of inefficiency. He also dedicates a decent portion of the book to "castles in the sky" which are an explanation of irrationality in the market that causes bubbles. When he says it is efficient what he really means is that it DOES course correct, and those corrections are as unpredictable as humans. He's basically discussing behavioral economics without using the word. it saddens me that people may have missed out on incredibly sound investment advice due to your unfairly negative review.
Jack, thanks for your review. When I do a review of one of my team, after starting any shortcomings, I offer advice on a corrective action. Thanks for tearing down the book and bringing to the surface, its many shortcomings. It is apparent that you have alternative options and obviously have done well by taking advantage of the market inefficiencies. Would you mind sharing your improvements upon the text and how you’ve completed financial arbitrage of the inefficient markets in a way that we all can benefit? Thanks
You are confused about what Karl Popper has written. Popper asserts that a scientific theory should be falsifiable; that is not the same thing as stating that you must always "test the opposite".What you may be thinking of is the "Reductio ad absurdum" argument, which in assuming that an opposite is true, leads to an illogical conclusion, a technique often used in mathematics. In the latter case this is "proof by contradiction".
In neither case is Malkiel probably deficient for his assertions.
I couldn't disagree more with your review. First off, you don't seem to understand what EMH is. It doesn't mean that the market is always correctly valued or that there are no bubbles! Its main thesis is as well established as the fact that the earth is round and revolves on its axis. This book explains this with facts and data and addresses Fox, Montier and Schiller's views very explicitly. ALL the evidence shows that no one can pick stocks or time the market, but be my guest if you want to try. I have made lots of money over the last 3 years with a diversified portfolio of low cost mutual funds. If you want to try to beat the market (something only 1/3 of investment professionals manage to do - and its a different 1/3 every year) you are not likely to succeed. The same principles of investing have applied for the last 400 years.
Thanks for the review. Can you suggest some books you liked?
I read the book and I'm at a loss with your review…Nowhere in the book the author says the market is always efficient. What the author says is that that market eventually corrects any inefficiencies that might exist (i.e. the correction in the early 2000s). Besides that, as a previous commenter pointed out, he also states (while backed by historical evidence) that is almost impossible to beat the markets.
In fact, this book was largely responsible for me to then read Shiller's Irrational Exuberance, which is quite interesting but has no actual advice you can follow through on.
Also, nowhere in the book he talks about mutual funds with 1-3% management fees; those are actively managed, which is the exact thing Burton speaks against. The passive mutual funds or ETFs that the author proposes have fees around 0.05%-0.2%.
Awful review. Have you taken a glance at the performance of hedge funds against the S&P500 for literally any prolonged period of time before writing your point about how their managers try to "exploit anomalies in the market"? Only a minority of hedge funds set out to beat the broader market. And an even smaller minority is able to succeed at it, albeit with a significant amount of luck involved. The majority of hedge fund managers actually BELIEVE in efficient markets THEMSELVES! Their product is aimed at HEDGING their customers' funds against losses, i.e., recessions, that statistically hit the S&P500 harder than they do the average hedge fund, hence their title.
Poor Jack. Perhaps your own bias made it difficult for you to clearly understand the key elements of this book. I have not only quoted from it regularly, but I've altered my own investment strategy. I followed the advice of simply investing in the boring old S&P 500 via a very low-cost ETF. AND THEN I HOLD. Even with the recent down-turn in US equities, The S&P is up 225% since you wrote your review (10 years ago). And that doesn't include a ~2% annual (dividend) yield. My guess is you just couldn't weather a short-term downturn and you sold at a loss. Don't blame Malkiel. The fault is yours.
Guys please don't take this review seriously and read this book yourself. This is one of the best books I've read on stock market.
I need someone to guide me how to trade have lost all my money in trading and am not ready to give up
Interesting review man. I read this as a complete investment noob but like your points and hope to read more about this subject.
This certainly aged like milk. You wrote this some 13 years ago -- how would you say someone who bought a low overhead index-fund 13 years ago would've done? (those don't cost 1-3% in management-fees per year by the way, but instead approximately 1/10th of that)
Funny seeing this absurdly pessimistic review and comparing it to the last 12 years of market performance. If you bought an SP500 index you’d be up 285% from the capital gains alone, not even including the mountains of dividends you’d realize!
Do you disagree with his view that most people should use index funds instead of buying individual stocks?
1-3%?? That's a terrible low-cost fund. You're thinking of managed funds, which he specifically recommends against because they generally don't outperform the market (though I don't doubt that there are some out there that do but are tough to find). A lot of Vanguard index funds at 0.1% or 0.2% (some of the admiral ones are even 0.05%). These also aren't management fees, they're expense ratios. The index funds don't outperform the market, but they certainly don't underperform. In fact, the total stock market index fund from Vanguard grew 33.52% last year and has grown 8.11% over the last 10 years.
I agree that the book is biased, but I definitely think it has its merits and provides better than average financial advice for the average person.