I have just finished reading A Random Walk Down Wall Street by Burton G. Malkiel. This time, I borrowed the book free from National Library Board! Woohoo! It was actually by chance that I picked up this book. I remember going to the library just half an hour before their closing time and just randomly picked this book in a hurry. I guess it is just fate that I had to read this book. :p
Through this experience though, I realized that NLB has quite a good selection of books! It would be one of my frequent hangouts from now on. ^_^
I actually learned quite a lot from Random Walk. The content is pretty comprehensive and offers a similar vibe to The Intelligent Investor, although it is slightly more optimistic. The book consists of quite a few chapters which would be good in explaining certain key concepts. Just to name a few:
- The Firm-Foundation Theory and building castles in the air
- Speculative bubbles and their effects through history
- Technical and Fundamental analysis
- Efficient Market Hypothesis
- Modern Portfolio Theory
- Behavioral Finance
- Risk taking and the concept of Beta
- Strategies for building your Portfolio at different stages of your life
At the beginning of the book, Malkiel emphasizes much that throughout the entire time that this book has been written (over 40 years ago!!!), he still thinks that the best strategy to adopt is to buy a low-cost index fund, be it a mutual fund or an ETF. Choosing to cherry pick your stocks essentially means that you are taking on more risk and there are countless of evidence through history to prove that even the best can’t beat the market.
The book has also taught me about Technical Analysis and Fundamental Analysis. Malkiel is great at being sarcastic and hilarious at the same time. If you are planning to read the book, please do not skip the chapters on Technical Analysis. You will have a great laugh, I promise. :p
I also used to think that Fundamental Analysis was just knowing how to analyze the statements in the Annual Report of the company. After reading the book, I realized that Fundamental Analysis partly comprises of analysts trying to predict future earnings, and more often than not they fail terribly.
The chapter on Behavioral Finance somehow reminded me of Charlie Munger and his critical humor. This part of the book is pretty interesting in my opinion and it describes the mistakes that investors make out of their own fear or pride. Humans are emotional beings, and it is common enough for us to do things that doesn’t bear any common sense. The book breaks down four rules for investors to prevent themselves from giving into temptation. One of them talks about how loss is being perceived – way more painful than profits – and how we should behave appropriately to it.
Malkiel also shows that risk can be mitigated in different ways. Risk can be reduced the longer you are invested in the stock market. The concept of Beta was introduced, and I’ve also seen this parameter in StocksCafe from my portfolio. Although it may not be useful for stock picking, it is like a good-to-know. However, don’t bet anything on it to guarantee returns.
Overall, it is a great read and gave me quite a couple of laughs. I learnt quite a bit from this book and encourage you to give it a go if you’re interested in starting your investment journey with a low cost index fund that tracks the S&P500 or STI. Not like the ratings mean anything like the points on Whose Line Is It Anyway, but I would give it a rating of 4/5! Kudos Malkiel, I’ve become a mini fan of yours… 🙂
Get it free from NLB, or feel free to click any of the links below if you want to get a physical copy of the book:
For prices starting from US$13.56 @ Amazon, click here: A Random Walk down Wall Street: The Time-tested Strategy for Successful Investing.
For a used book with prices starting from US$8.98 @ BetterWorldBooks, click here:
A Random Walk Down Wall Street Revised and Updated. Note that it may not be the latest version so do check before you do the actual purchase.
Now I can finally return the book in peace! :p
Thanks for reading!
Miss Niao xoxo