“A Random Walk Down Wall Street” by Burton G. Malkiel

A Random Walk down Wall Street: The Time-tested Strategy for Successful Investing

a-random-walk

Do you want to get rich quickly? Then this is not the book for you! But if you really do want to get rich, albeit slowly, then this book has plenty of useful information.

In “A Random Walk Down Wall Street,” Burton Malkiel starts off by taking us through a history of speculative crazes, beginning with the 17th-century Dutch tulip mania and ending (in the most recent, 2015 edition) with the 2008 crash of the real estate bubble. The first third of the book is devoted to describing how NOT to invest if you don’t want to lose your shirt. Wannabe investors would do well to heed Malkiel’s warnings that if it seems too good to be true, it probably is. That being said, the first section is not hectoring or sententious, but an animated stroll through investing history, brought to life by Malkiel’s dry wit and vigorous writing style. A former professor at Princeton as well as an experienced participant in the world of finance and investing, Malkiel brings his teaching abilities to the page, so that reading him is like listening to a really good lecture.

The second section covers different approaches to investing and analysis. Like a good professor, Malkiel expects us to keep up here, and for those of us who come into the book knowing absolutely nothing about the subject, this is probably the section that is the most difficult to follow. I did, however, come away from it bearing at least a hazy idea of the difference between technical and fundamental analysis, and what beta is, as well as why none of these things are very good at predicting future returns.

In the final section Malkiel gets to the heart of the matter and gives his advice to fledgling investors. I, obviously, am not a specialist in the subject, and I can’t speak as to how well this will actually work out in real life, but that, in a nutshell, is the point of the whole book: even specialists have a very hard time predicting the stock market. Having explored the problem at length in the first two sections, Malkiel gets down to brass tacks at the end and specifically recommends avoiding hot tips and all attempts at timing the market. Instead, he says, you will be better served by the “buy and hold” strategy, preferably in mutual funds, preferably in low-cost index funds. This seems to be the general advice these days, and the argument for it is strong. Malkiel’s advice is merely more specific, with chapters devoted to different types of funds to invest in (REITs, TIPs, whether or not to invest in emerging market funds, and so on) depending on where you are in your life and what your tolerance for risk and volatility is. Although the subject matter here is inherently dry, Malkiel keeps it entertaining with aids such as his “Sleeping Scale of Major Investments” (a table ranging from cash in the bank, which will keep you semi-comatose, to gold, which is almost guaranteed to give you bouts of insomnia). He also (the professor coming out again!) gives the reader prep exercises and pie charts to help figure out what you want to do with your money.

The Sleeping Scale:

sleeping-scale

Having recently read JL Collins’ The Simple Path to Wealth: Your road map to financial independence and a rich, free life (which I also recommend), I can say that the basic advice of the two books is more or less the same. Collins’s differs largely in being much simpler, while Malkiel’s work is aimed at those who want to know more and maybe be a little more involved with their money. The primary area in which they differ is over whether or not to own your own home: Malkiel is strongly for it, while Collins as against. The arguments on both sides are valid, so that’s something that’s up to you to decide. In any case, an extremely interesting and probably very helpful (as much as something can be in the world of investing) book for anyone interested in personal finance.

Want your own copy?  Get it here: A Random Walk down Wall Street: The Time-tested Strategy for Successful Investing

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