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on 21 September 1997
If you're looking for a get-rich-quick book,
don't bother. While this book will help you
become a smarter investor, the goal isn't so
much to convince you that certain methods of
picking securities are superior to others as it is to
provide a solid education in financial market
theory.

It's a long book, and written with an academic
style that some people will find dry and boring,
but Malkiel successfully avoids turning it into
a textbook. He manages to present a wealth of
information about *why* markets behave the way
they do without getting bogged down in the math.

If you've read some of the other books on
investing, and are interested enough to want
to look deeper behind the scenes, this book
is well worth your time.
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on 13 May 2014
Most investors aim to outperform their peers. Either they try to identify investments that have better than average prospects, or they try to buy low and sell high, or they pay an investment manager to play the money game on their behalf. Professor Malkiel's thesis is that they would probably do better to put their capital into cheap, passive mutual funds that seek to do nothing more ambitious than merely track market indices. If they follow this strategy, he suggests, they'll not only save themselves a lot of time, hassle and worry; in the long run, they'll probably also make more money than most of those who think that markets can be outsmarted. Discussing cash, gold, property and collectibles as well as fixed-interest securities and equities, Professor Malkiel's book tells you everything that you need to know in order to put his investment philosophy into practice, including how to tweak your asset mix according to your age, your appetite and capacity for risk and how the markets are fluctuating.

Professor Malkiel's argument is, I think, very persuasive. His notably accessible book - clear, humorous and free from mathematical gobbledegook - makes his case very cogently indeed, and adduces a mountain of evidence to support it. If I'd read it as a youngster and followed its advice, by now I'd be a multi-millionaire.

I can think of only two caveats. The first is that the book is aimed primarily at American readers. Its core ideas are as applicable in the UK as in the US, but some of Professor Malkiel's material about taxes and pensions is irrelevant to people in Britain. Secondly, and more importantly, adopting the professor's method entails sharing in the profits of businesses whose activities not everyone is comfortable with - companies involved in tobacco, alcohol, armaments, pornography, environmental degradation... Some people - myself included - would say that this objection to passive investment is insurmountable. If you're not one of them, this book could well be one of the most useful that you'll ever read.
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on 29 July 1998
If the thought of reading an economics book scares you, this is the book for you. Burton Malkiel's work is one of the most famous investment books of the century, but it is simply a joy to read. The text does an excellent job of introducing the reader the gem of modern economic theory, the Efficient Market Hypothesis. I would like to note, however, that this hypothesis has rightfully undergone a great deal of scrutiny in recent years. Before you subscribe to Malkiel's ideas and hire a chimp to throw darts at the Wall Street Journal, you should take the time to look at the arguments against the EMH. Specifically, I would suggest a few works by Richard Thaller: 1) The Winner's Curse: Paradoxes and Anomalies in Economic Life and 2) Advances in Behavioral Finance. The latter is a bit dry, but it would be very enjoyable for the hard-core economist out there.
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on 16 January 2003
Let's talk about the Random Walk. The stockmarket is a game of chance - you might as well flip a coin to determine which way prices are going. In fact tossing is preferable because researching shares or paying professionals takes time and costs money.
The Random Walk attacks the tenets of professional fund management: that investors can pick shares trading at a lower price than their true value or traders can spot trends in price movements and exploit them.
Malkiel marshals an army of statisticians, back-testing the more common investment strategies and finding them wanting. Sure you may win in the short-term, but that is lady luck. In the long-run, once you take costs into account, all bets are off.
I do not buy it. Back-testing is fine and dandy but does it actually prove anything? Real investors - and I am talking about private investors here - change their strategies, exercise judgement and break the rules. They are not slaves to the slide-rule.
While it is common knowledge that professional money managers are doomed to fail, I suspect private investors have a better chance of beating the market. The problem is private investors are by nature shy animals.
Just because I disagree with his thesis does not mean I do not think you should bother with the book. Malkiel is articulate and his tour through fundamental analysis, technical analysis, modern portfolio theory and the capital asset pricing model is as good as any introduction I have read.
I just cannot bring myself to believe anomalies do not exist when I see them all around me. You know - internet bubbles, overreactions, Warren Buffet. Even Malkiel sees anomalies. But in his world they are rare, difficult to profit from and vanish once common knowledge.
He even has an investment trust habit. C'mon Mr Malkiel admit it - inside every index-hugger is a stock picker desperate to get out. It is more fun!
___
A word of warning for British readers. The first three chapters are theory, it is a universal language. The fourth is a practical guide, less practical for us because it is written in American: all IRA's and Keogh plans. Still you can translate some of it and derive general principles from the rest.
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on 19 February 2013
This was the first book I read on the financial markets, and for some time afterwards I was convinced that the efficient market hypothethis held true no matter what. Now with a few years of actual market experience, supplemented by many more publications and my own trading, as well as the madness we have seen in Europe over the last twenty four months, I tend to believe that markets are 'largely efficient' but that pockets of inefficiency can be found and profited from.

The difficulty is doing this with enough consistency to beat the market overall AND not suffer from massive volatility in one's positions. After all my exposure to Macroeconomic Analysis (top-down), Fundamental Analysis (bottom-up), Technical Analysis, and 'feeling' (which really does only come with time in the game) it's clear that one has to bring this jigsaw together piece by piece. My opinion is that short-term trading is not for the individual man nowadays - machines are quicker and more meticulous, and Investing leaves one too open to large swings in sentiment as we live in choppy times. But Speculation i.e. roughly three to six month time period, is I think the best way to bring all the pieces of the markets together and give the investor a fighting chance at making above average returns. It's also less stressful than trading intra-day. The best and most realistic book I have read on Speculation is Methods of a Wall Street Master by Victor Sperandeo. He doesn't promise a quick one-step to riches program, but he does explain the building blocks of genuinely successful speculation.

Read this book, enjoy it and take away with you the fact that it is VERY hard to make above average returns. Not only because the market tends to be efficient, but that your own psychological flaws such as overconfidence will most probably trip you up along the way. Then read other publications like those by Victor Sperandeo, learn how to speculate, try it out, have some fun but above all, learn how to also manage your risk.
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on 8 July 1999
Except for perhaps a personal finance book, this book should be the first book bought by a beginning investor. Although the author makes it clear up-front what his views of the best investing options are, this book presents theories and facts in an understandable manner that will lead you to form your own conclusions.
No matter if you think you want to day trade, buy and hold, buy mutual funds, buy bonds, or buy an index fund, this book will give you an invaluable understanding of the market, and after reading it you will be in a much better position to plot your investing future.
As for those that call it academic BS, the book presents the results of actual studies and has an extensive bibliography, you are asked to take nothing forgranted. The book acknowledges that some people do beat the market, and will give you information that will allow you to come to your own conclusions about how you would best invest your money.
This is not a how-to book but a book that gives a well-rounded understanding of the market. It will not explain all the various types of stock options, for example, and if after reading this you want to buy options, there are plenty of detailed books on that. You are well advised to read this first though.
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on 6 September 1999
I got this book as a gift and I am very glad that I read it. First to say that it is a pleasure to read this book, it is very very well written, something not commonly found in investment books. As an investor, I take the risk of investing in Internet Stocks (not really recommended in the book, a typical "castle in the air" investment), though I buy for the long run (A Montley Fools Graduate). This book will remind and teach you with good examples that investing involves not only careful examination of companies but also understanding the "emotions" of the market. In the long run, as the book well explains, chances are that the prices will adjust to the "real" value of the companies.
The book explains thoroughly several approaches that have been followed by "professional investors" to beat the market. This is very educative for the personal investor.
This book will not tell you which companies to buy (some suggestions are given to choose them) but will educate you for the long term investment.
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on 12 July 1998
As an MBA student majoring in Finance and a serious investor; I have found this book to be execellent in connecting the dots so to speak. I believe it to be a must read for any investor. One of the other reviews indicated that the market is not random and the basic premise is wrong. Actually the market is very much random (I also have a strong background in math and physics, which by the way has nothing to do with investing and common sense). The inclusion of public information (news) in a semi-strong market is by it's very nature random. Stock prices are automatically adjusted to reflect this new information. Basically all this means is that you cannot earn an abnormal profit for the risk you take on with any consistency. In summary, this book is right on target, and a must read!
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on 27 February 1998
About 20 years ago (maybe 25) I had made and then lost large sums of money on the stock market and wanted to know what was REALLY happening. This book was the one that set off all the lightbulbs for successful investing. Over the years I've given away dozens of copies both because it has helped others AND because I get to buy the latest, greatest edition. Malkiel is a master at explaining the complex intricacies of investing in ways that maintain that complexity, but also make it able to be understood. Besides, it's fun to read the book on which the other "Guru's" base their agreement or disagreement. If you enjoy reading about, or even agree with Warren Buffet, you'll want to also read about Malkiel's RANDOM WALK, and wonder if BOTH could be right?
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on 28 April 2011
Prof Malkiel's strategy is to, at fixed intervals, invest cash split 55-80% (depending on age) into geographically diversified equities, the rest into bonds, to rebalance annually to the set percentages, & always to invest in low cost trackers.

No market timing, no attempt to take cash at the top &/or invest at the bottom other than through rebalancing on the basis that markets are impossible to call in their randomness & efficiency.

Perhaps this was once pioneering, but it's well-travelled now & Vanguard & others with their 50:50, 60:40, lifestyle etc etc funds have pretty much taken care of business. Although the US market is way ahead of the European investment market in this, Deutsche Bank X-Trackers platform also offer all-in-one funds of exchange traded funds that expose investors to 50-70% equities & 30-50% fixed income packages.

So, although his core 'sell' is basically sound & any antidote to the financial 'services' industry is not unwelcome, you do wonder if a new volume, the entirety of the key findings of which are set out on just two pages (377-378), is really called for.

Much of the rest - markets under- & over-shoot, it's hard as a man in the street to beat the market - is also fine as far as it goes, but not exactly groundbreaking.

As regards the idea of a core 60:40 (approximate) passive portfolio, I felt he did not reflect on the thinking others have done as regards portfolio mix & diversification & actively managing a passive core portfolio by at least some reference to momentum &/or mean reversion &/or tactical allocation (aka 'Passive Mark 2').

All this stuff is very in vogue right now & the internet is alive with backtested models on all this.

Sure, one can & should be sceptical as to whether a revisionist take on buy, hold & rebalance is right (& as regards backtesting as with technical analysis as a general matter), but just to take the view that any tweak is doomed because if it works everybody will follow it & render any such strategy neutered is a bit lacking in analytical depth.

And, not least, given Prof Malkiel recognises the boom-bust irrationality wrapping a general upwards drift one would have thought he would at least consider how retail investors could seek to position to avoid buying high. He only really grips this in the page he devotes to advising that 'gold is really high now, there's a high premium to coming in now'.

He does not really consider whether or not, & if not why not, commodities should be part of the core portfolio in the same way as he considers that real estate should be.

Nor does he consider or advise what to do with a lump sum either initial or accumulated (beyond annual rebalancing).

Meaning, in Q2 2011 for example, markets up 89%+ from the last lows, do you not want to go from a 80% or 55% 'risk on' position to a more defensive position waiting for a pullback? Or, at least consider at some point protecting some of your profits otherwise than through the annual rebalance?

And, if you have $100,000, from, say, a redundancy, do you really go totally invested all at once on any random day? Would it not be better to wait for a 20% or so pullback?

What about a core passive holding self-managed with a view to mean reversion, so it is not just annual rebalancing that protects you from buying high? So you might be 80% risk moving towards 50% or 40% over a cycle? So you can invest on pullbacks or invest profits in satellite investments so as to diversify or soup-up the core?

Nor does he consider currency risk as regards your fixed income component. Do you not want some currency diversification so you're not all $ or all £? Given the stress on asset class & currency diversification on the equity component it is surprising that no consideration has been given to this issue on the fixed income side.

He's so committed to arguing for efficient markets that there is too little on the nuts & bolts details of the management of the core portfolio nor focus on those who are developing the buy, hold & rebalancing strategy, &, also, there's precious little on ideas for satellite investments. So, what about harvesting profits into managed futures exchange traded funds & such like, taking a punt with profit?

Overall, it's ok & reading this is going to save you from the active management 'where are the clients' yachts' community but all the info & more is freely available elsewhere & the Prof has not really moved this book on into a practical users' manual based on fusing passivity with momentum & mean reversion & tactical allocation.

I would say that books like Swenson's & Faber's are a better take on all this stuff, even if you approach the 'manage like the ivy league endowments' with healthy scepticism & from a ultra-passive buy, hold & rebalance foundation.
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