The Market's Humanity

Jaison Patel

A Random Walk Down Wall Street

By Burton Malkiel

Is it possible to always be right?  If it were, every investor, child, and dog would bathe in Franklins each morning.  People cannot accurately predict the future consistently.  However, there are researched methods that investors can study in order to understand the common hardships of others.  In his first person novel, Malkiel suggests that the market does not care about feelings - it is rather the hub for professional gambling.  He knows the penny-pinching people who work for money day by day.  He strives to educate investors about how to make money work for them second by second.  Malkiel shares his knowledge of how analysts fail to predict the future and how an investor can reduce risk in their trades.

Compiling a list of how security analysts face the predicament of predicting the future, Malkiel addresses the five major issues which investors must attentively watch for.  He warns against putting all of one’s eggs in the same basket just because a stock appears to be favorably moving; “The incapacitation of key members of management, the discovery of a major new product… and natural disasters such as floods and hurricanes” can lead to the swiftest turns in the most seemingly stable industries, Malkiel cautions (169).  I respect his alerts because regardless of providing no elaborate information, they help the reader further understand that one must invest with prudence.  Malkiel proceeds to inform by incorporating a sympathetic view towards analysts.  Even after scolding them for their frequent selfishness, Malkiel understands that “analysts are often misguided… and at times susceptible to the same pressures as other people.  In short, they are really very human beings” (173-174).  He shows his understanding that machines do not completely churn the stock market’s gears; I hold his words with reverence.  He recognizes that no human treads the waters of perfect efficiency.

“Many stock-market investors are far from fully rational” (235)

Observing the spontaneity of investors, Malkiel recognizes that the high risk involved in high volume trades must be reduced.  The solution lies in distributing one’s eggs to numerous baskets; Malkiel claims that “diversification can reduce risk” (205).  I agree that investing in a variety of stocks can fortify positions - not that it can totally eliminate risk.  Malkiel addresses my uncertainty by including the caveat that “there can be too much of a good thing” (206), in reference to diversification.  His concepts of risk management through the Modern Portfolio Theory expunge my fears about diversifying investments.

Any reader who yearns to take control of their own financial situation will enjoy Malkiel’s A Random Walk Down Wall Street.  The novel seamlessly blends the mechanical market with human interaction to produce an understandable yet comprehensive text.  Malkiel’s writing attracts all types of individuals who have their own outlook on the stock market, as his open-mindedness aids him in respecting all viewpoints.