Investing Curiosity

Jaison Patel

A Random Walk Down Wall Street

By Burton Malkiel

“The stock market has little, if any, memory” (141).

Numbers rise and fall.  Lives are heightened and ruined in the blink of an eye.  In Malkiel’s first person novel, he reveals secrets about the stock market and the potential threats that must be avoided at all costs.  He pervades the genre of finance with his ideas that spontaneous chartists, people who buy stocks based on the general opinion of crowds, are unsuccessful; he instead praises fundamentalists, the investors who buy stocks based on the intrinsic value of the company.  Malkiel advocates for the method of holding stocks over long periods of time while berating the day-by-day method of investing.

Through his writing, Malkiel introduces ideas that make sense in theory.  Suggesting that, “the key to investing is… its (an industry’s) ability to make and sustain profits” (97), Malkiel directly states that people need to be aware of the industry they are buying into.  I agree that one can receive fruits of their investment if they are aware of the stability, not growth, of the industry.  Alongside his praise of this “firm-foundation theory of value” (31), Malkiel expresses how it is self-defeating to tell everybody about one’s special strategies to investing, as the strategies will no longer be special if everyone uses them.  His rationale solidifies Malkiel’s reasoning as to why technical analysis is ineffective - the individual loses once the crowd knows too much.  He interests me with his concepts about investors in the stock market.

“The stock price may not converge to its value estimate” (133).

Admitting that fundamental analysis may fail, Malkiel characterizes the stock market as a living entity; the market ultimately dictates how much prices will rise and fall for each company.  Understanding that all strategies may prosper or fail at times, Malkiel stays aware of chartists’ strategies, thus, attracting me to his book.  As my dad is a successful chartist, I am pleased to find Malkiel including the “Why does Charting Work?” section (117).  It intrigues me to learn the three main reasons why my dad earns lucrative gains from his daily stocks.  Even though I live with a counterexample of Malkiel’s ideal investor, I am fascinated by Malkiel’s understanding of all the different methods of investing.  He continues with his “Elaborate Technical Systems” section to further describe the specific patterns which chartists use to invest (145).  

For anybody interested in the stock market, A Random Walk Down Wall Street is an exceptional choice.  One does not need to be a potential investor to enjoy this book, as it offers more than tested-strategies of investing.  Malkiel initially attracts his audience by offering his commentary of historic events, including the Tulip Bulb Craze (38-41), the South Sea Bubble (41-47), and the Stock Market Crash (53).  His analysis of numerous events and all types of strategies, regardless of his bias towards fundamentalists, makes this book tempting to anyone with a burning curiosity about the stock market.