Resumo de A Random Walk Down Wallstreet

A Random Walk Down Wall Street

In this book, Burton G. Malkiel writes about investing strategy from the perspective of randomness. Criticizing the technical school of investing, Malkiel begins the book with a story about an experiment he conducted with his students at Princeton.

Giving each student a coin and the assignment to toss it in the air every night and record the result-heads or tails, Malkiel designated heads a quarter point gain in stock price and tails as a quarter point loss. After the experiment was conducted, Malkiel randomly distributed the coin flips onto a chart and brought it to a technical school analyst that raved madly about how the ?stock? should be purchased.

As amusing as the story is, Malkiel warns that many investors and investing professionals are getting too caught up in hot theories, new strategies, and the latest trends in investing. Believing that one would be able to predict an almost completely random market is about absurd as the technical analyst that believed a stock should be bought whose price was determined by coin flips. Group psychologies and group mentalities, says Malkiel, often drive the markets randomly up and down. It is, therefore, very difficult to invest wisely.

Instead of going with fads and technical theories, Malkiel himself writes of the fundamental school- evaluating stocks on the basis of their performance, management, and risk potential. He writes that even buying individual stocks based on the fundamentals is dangerous so instead, one should pursue stock buying in a diversified fashion. What this means, Malkiel writes, is buying into a diversified portfolio that reduces idiosyncratic risk. In addition, Malkiel advocates long term buys with dollar cost averaging or putting money into the same fundamental stocks despite the market situations. Only by doing so will one be able to hedge risk and, as Malkiel puts it- ?Get rich slowly but surely?.

All in all, Malkiel?s book is an enjoyable read with excellent strategies for investors of all ages and experience. Long term buys increase yields and prevent massive losses of money due to herding and group mentalities. The difficulty that most investors face is not the strategy, but the implementation, holding stocks even if they are 10% down, not joining the latest dot.com or real estate craze. There is temptation to get rich fast, but slow and consistent will often reach the same point with half the headaches.

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