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Stocks

Better Essays
Originally published in 1973, the book recommends a buy-and-hold strategy using dollar cost averaging. The book also talks about some historical investment crazes; or as Dr. Malkiel calls them, creating “castles in the air.” For instance:

• Tulip Bulb craze: Tulips imported into Holland from Turkey during the 17th century gained instant popularity. According to Investopedia: “The true bulb buyers (the garden centers of the past) began to fill up inventories for the growing season, depleting the supply further and increasing scarcity and demand. Soon, prices were rising so fast and high that people were trading their land, life savings, and anything else they could liquidate to get more tulip bulbs. Many Dutch persisted in believing they would sell their hoard to hapless and unenlightened foreigners, thereby reaping enormous profits. Somehow, the originally overpriced tulips enjoyed a twenty-fold increase in value - in one month!” Eventually the market crashed and individuals who had traded the value of their home for a single tulip realized their mistake.

• South Seas bubble: This financial institution was granted a monopoly over trade in the South Seas by the British government. The company was supposed to grow due to trade in slaves, as well as mineral wealth (i.e.: gold and jewels). The company even agreed to finance a large debt Britain incurred after a war. “Investors quickly saw what they perceived as value in the monopoly of the South Seas. Shares were quickly snatched up from the start… The management team of this company started hyping the stock, spouting illusions of grandeur to the investors.” After the stock price reached astronomical levels, the crash began. “Eventually word broke out that the management team had s...

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...onuses for the professionals. That's why I think you'll enjoy this random walk down Wall Street. It has all the ingredients of high drama — including fortunes made and lost and classic arguments about their cause.

But before we begin, perhaps I should introduce myself and state my qualifications as guide. I have drawn on three aspects of my background in writing this book; each provides a different perspective on the stock market.

First is my employment at the start of my career as a market professional with one of Wall Street's leading investment firms. It takes one, after all, to know one. In a sense, I remain a market professional in that I currently chair the investment committee of an insurance company that invests more than $250 billion in assets and sit on the boards of several of the largest investment companies in the nation, which control a total of $400
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