FA & TA Versus Random Walker

Posted by Kris | Tuesday, February 03, 2009 | | 0 comments »

Finished reading this book during the long holidays. A very interesting book backed by facts. 

A foreword from Wikipedia
A Random Walk Down Wall Street, written by Burton Malkiel, a Princeton economist, is an influential book on the subject of stock markets. Malkiel argues that asset prices typically exhibit signs of random walk and that one can not consistently outperform market averages. The book is frequently cited by those in favor of the efficient market hypothesis. As of January 2008, there have been 23 editions.

Literally, this book is a debate on the effectiveness of fundamental and technical analysis on the stock market compared to hypothesis that the efficient market theory holds in the stock market. It means that for the believer of the efficient market, mastering FA & TA cannot make you rich at all. Malkiel throughly lambasted FA & TA analyst backed by statistical findings of mutual funds, analyst calls, etc.

He also explained the following interesting facts and theories inside the book.

1. How a bubble grows and goes burst.(tulip mania, tech bubble, South Sea tragedy)
2. Assessing risks mathematically and how it relates to gains. Conclusion: More risk means higher reward, thus NO PAIN NO GAIN. 
3. The history of stock valuation and evaluation methodologies/theories 
4. How buying an index fund is a good way to invest
5. "Past performance does not reflect future performance" a common statement found in mutual fund prospectus: Why alot of mutual funds fail to perform above the average index returns.
6. An intro to options and future derivatives

A good read and it really make me think outside of the box towards my journey to financial freedom.

Rating: 9.0/10