Introduction to “A Malkiel Random Walk Down Wall Street”
If you are a new investor who is interested in investment history or how to make investments, purchase this book by Burton G. Malkiel. This book is ideal for any experienced investor who wants to brush up on their knowledge of investment techniques and theories also. There are not many books that have been written about investing. A Random Walk Down Wall Street is broken down into four parts which include; Stocks and Their Value, How the Pros Play the Biggest Game in Town, The New Investment Technology and A Practical Guide for Random Walkers and Other Investors. In total, there are fifteen chapters that cover a lot of key points that many will find interesting and informative.
The first edition of A Random Walk Down Wall Street was written over forty years ago. Burton Malkiel’s first tip to investors in his preface is that “Investors would be far better off buying and holding an index fund than attempting to buy and sell individual securities or actively managed funds” (Malkiel, Page 17). You will learn that buying and holding all the stocks in a bond stock market average will most likely outperform professionally managed funds. I agree with Burton’s theory on this strategy. He uses an example on Page 17 showing how an initial investment of ten thousand dollars in an Index Fund would have a higher return than an investment of purchased shares of a managed fund. The author created this tenth edition of the book because there have been significant changes in the financial instruments that are available.
Many investors can benefit from using newer financial instruments and critical analysis. The tenth edition of this book also provides a clear description of the academic...
... middle of paper ...
...ly rare. I agree with this statement because any flaw within the system or process can lead to misjudgment or misevaluation. To keep things simple, I would use my own gut feeling and research to invest and build a portfolio for myself. If the portfolio succeeds, I would feel better and proud of myself for making the decisions I made. If I used a firm or broker to manage my portfolio and there are large losses, I would most likely sit there in awe and blame others for what had happened. It is important to understand the risk-return trade-offs that are available (Malkiel, Page 415). The author refers to investing as a game. I agree with this statement because with any game, it is too much fun to just give up.
Works Cited
Malkiel, Burton G. A Random Walk Down Wall Street: The Time-Tested Strategy For Successful Investing. New York: W.W. Norton, 2012. Print.
The purpose of this paper is to provide a summary of the article called “Can We Keep Our Promises?” by Robert D. Arnott, and to help better understand the three key risks facing each investor.
For instance, Royal Bank of Canada stockbroker Brad Katsuyama. Discovered that nearly all his trades had predictable or desired results. He lost money when he should have gained it. Before he could blink, shares which would have likely profited traded far worse than the original market price.
"Who Should Invest With Us - Edward Jones: Making Sense of Investing." Edward Jones. Web.
The goal is to teach you to wear the glasses of a professional trader who sees the difference between low and high-probability trades. With these new glasses, your trading account gradually reflects the consequences of making high-probability trades. With more money in your trading account, you can buy more contracts. You experience the law of compounding, and your account grows exponentially.
The fact that economic minds were using probability to find correlations between the present and the future would lead to enormous restructurings of financial institutions. This progression from a compliance to Providence to a respect for probability issued in a new age for finance capitalism. Speculation, though always present in America, soared. With it rose a desire for better risk management. Throughout Freaks of Fortune, Levy depicts how, with growing trust in the ability of financiers to manage risk; the amount of money in the banks surged (131), more and more people began finding security in the purchase of insurances (166), and wealthy entrepreneurs sought to gain capital and reduce risk through development of corporations (284).
Investment philosophy is a set of guiding principles that instruct and shape an individual's investment decision-making process. In the vast world of stock market, choosing the “best” investment philosophy is often been said as one of the biggest challenge to the investor as there are many that have been developed over the decades. Thus common people or so called investor tends to follow the investment philosophy that established by the reputably successful investor while picking the favourable stock. For instance, Value Investing by Benjamin Graham and Warren Buffett as well as Theory of Reflexivity by George Soros.
Book Report for A Random Walk Down Wall Street Name Institution Affiliation Book Report: A Random walk Down Wall Street The book, ‘A random Walk down Wall Street’, gives a serious evaluation on the general feeling about the stock market and continues to explain why people are sometimes wrong about the stock market. The Author, Burton G. Malkiel, suggests fundamental guidelines on how young and individual investors can rethink their decisions on investment decisions. The author mixes historical examples where he introduces the Castle-In-The-Air theory, personal feelings and humor.
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
From my perspective, the usefulness of CAPM is directed towards efficient investment decision making and strategic management. Moosa (2013) remarks CAPM to be a supportive model in ‘evaluating the performance of managed portfolios and for investment purposes’.
Howells, Peter., Bain, Keith 2000, Financial Markets and Institutions, 3rd edn, Henry King Ltd., Great Britain.
There is a sense of complexity today that has led many to believe the individual investor has little chance of competing with professional brokers and investment firms. However, Malkiel states this is a major misconception as he explains in his book “A Random Walk Down Wall Street”. What does a random walk mean? The random walk means in terms of the stock market that, “short term changes in stock prices cannot be predicted”. So how does a rational investor determine which stocks to purchase to maximize returns? Chapter 1 begins by defining and determining the difference in investing and speculating. Investing defined by Malkiel is the method of “purchasing assets to gain profit in the form of reasonably predictable income or appreciation over the long term”. Speculating in a sense is predicting, but without sufficient data to support any kind of conclusion. What is investing? Investing in its simplest form is the expectation to receive greater value in the future than you have today by saving income rather than spending. For example a savings account will earn a particular interest rate as will a corporate bond. Investment returns therefore depend on the allocation of funds and future events. Traditionally there have been two approaches used by the investment community to determine asset valuation: “the firm-foundation theory” and the “castle in the air theory”. The firm foundation theory argues that each investment instrument has something called intrinsic value, which can be determined analyzing securities present conditions and future growth. The basis of this theory is to buy securities when they are temporarily undervalued and sell them when they are temporarily overvalued in comparison to there intrinsic value One of the main variables used in this theory is dividend income. A stocks intrinsic value is said to be “equal to the present value of all its future dividends”. This is done using a method called discounting. Another variable to consider is the growth rate of the dividends. The greater the growth rate the more valuable the stock. However it is difficult to determine how long growth rates will last. Other factors are risk and interest rates, which will be discussed later. Warren Buffet, the great investor of our time, used this technique in making his fortune.
I became an enthusiast of finance ever since I was at high school. At the political economy class, my teacher asked us: if you have a million RMB, how would you use it? She then introduced us the concept of investment, and I was intrigued specifically by the stock. For the latter two years of my high school, I have been reading books and articles regarding the stock market in the U.S. and in China. As one of the outstanding students ranked top 1% in College Entrance Exam in Hainan Province, China, I was accepted by the City University of Hong Kong with a full scholarship. With the strong interest in finance, I chose quantitative finance and risk management as my major.
Block, S. B., & Hirt, G. A. (2005). Foundations of financial management. (11th ed.). New York: McGraw-Hill.
Johnson, G., Scholes, K., Johnson, G. and Whittington, R. 2011. Exploring strategy. Harlow: Financial Times Prentice Hall.
This paper will define and discuss five financial theories and how they impact business decisions made by financial managers. The theories will be the Modern Portfolio Theory, Tobin Separation Theorem, Equilibrium Theory, Arbitrage Pricing Theory (APT), and the Efficient Markets Hypothesis.