Welcome to our A Random Walk Down Wall Street Book Review. A Random Walk Down Wall Street is a succinct but comprehensive financial guide for the individual investor. It covers everything from history of the markets to portfolio construction.

The book is a mini bible on how to invest in the stock market. It is one the best investing books ever written for new investors.

‘You can do as well as the experts – perhaps even better.’

About the Author Burton Malkiel

Burton G. Malkiel has a wealth of experience in the financial markets. He is the Chemical Bank Chairman’s Professor of Economics Emeritus at Princeton University. Burton is also a former member of the Council of Economic Advisers and Dean of the Yale School of Management. He has also served on the boards of several major corporations, including Vanguard and Prudential Financial, and is currently the chief investment officer of Wealthfront.

What is A Random Walk Down Wall Street about?

The book takes you on a tour through all the key facets of investing, covering both the history of the market and key investment theories. It introduces fundamental and technical analysis, behavioural finance, different investment assets classes, portfolio construction and risk management.

What will you learn from A Random Walk Down Wall Street?

The books give a clear insight into the difference between investing and speculating. It takes you through the history of market bubbles from the Tulip Bulb Craze in the 1700s to more recent bubbles from the 1960s to 2010.

‘It is not hard to make money in the market, what is hard to avoid is the alluring temptation to throw your money on short, bet rich-quick speculative binges.’

It is extremely useful to know what has happened in previous market bubbles. In this way, you can avoid getting caught up in something that could cause substantial financial losses. History tends to repeat itself – especially in the stock market.

‘Unsustainable prices may persist for years, but eventually they reverse themselves. Such reversals coming with the suddenness of an earthquake: the bigger the binge, the great the resulting hangover.’

He introduces both technical and fundamental analysis. While he is not a fan of technical analysis, writing:

‘What are often called persistent patters in the stock market occur no more frequently that the runs of luck in the fortunes of any gambler.’

He still examines both and analyses the positives and negatives and how to use them.

The book will give you a clear understanding of the key investment theories including Modern Portfolio theory, Capital Asset Pricing Model, Smart Beta, Risk Parity and Factor based investing. You will learn how you can use them to create a portfolio and also manage risk in your portfolio.  

Malkiel provides a fascinating introduction to behavioural finance and outlines some of the key behaviours to be aware of, including over-confidence, biased judgements, herd mentality and loss aversion.

‘We are not wired to be successful traders – in investing we are often our worst enemy. An understanding of how vulnerable we are to our own psychology can help us to avoid the stupid investor delusions that can screw up our financial security.’

The book has general investment advice and an introduction to compound interest, inflation, taxes, bonds, REITS and collectable assets such as gold and bitcoin.

You will learn about portfolio construction and management according to your saving plans and risk tolerance. It also covers important factors such as rebalancing, saving, diversification, dollar cost averaging, tax efficiency, options and puts.

‘The harsh truth is that the most important driver in the worth of your asset is how much you save and saving requires discipline’

A Random Walk Down Wall Street Review Conclusion

This book gives you a clear introduction to all the key features you need to consider when investing in the stock market. The author Malkiel has his own distinct views on technical analysis, financial analysts, and index funds but that does not distract from a clear analysis of the key pieces of the investment puzzle.

One of his most famous lines is:

‘a blindfolded chimpanzee throwing darts at the stock listing can select a portfolio that performs as well as those manged by experts.’

Of course, he does not actually advocate such a strategy. It is difficult for actively managed funds to beat the market primarily because of the high expenses and large trading costs that detract from the investment returns.

Instead, he recommends indexing the core of your portfolio. Afterwards, you can try the stock picking game with the money you can afford to put as greater risk.

After reading this book you will be able to make your own educated choices.

BTB Recommendation: – Best for beginners starting out on their investment journey

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