Book Review on, ‘A Random Walk Down Wall Street’
The book, ‘A Random Walk Down Wall Street’ is an investment guide book written by Burton G. Malkiel and published in 1973. However, it has been subsequently been revised in its publishing stages since the first publication (1975, 1981, 1990, 2003, 2007, 2011 and the latest version in 2012). This implies that the book has undergone development procedures since the first edition to its current 11th edition. The author is an Economics Professor at Princeton University and also the Chairman of Chemical Bank which clearly brings out the investment picture and strategies outlined in the book for eh best results to any person looking towards becoming an investor. The overall subject matter of the publication is based on investment, giving directions that can be pursued by various investors. Currently, the book retails at $13.21 with ISBN 978-0-393-08143-5 (Malkiel 3).
There are several factors that pushed the author towards writing this book. One is the need for investors to have a better understanding of the merits of buying and holding an index fund over purchasing and selling individual securities. The author also felt that there was need for shedding more light on the wisdom of choosing portfolios that are doing well. The third factor is the 30-year observation that resulted into the outshining of professional portfolio managers by the S&P which was mismanaged. The author has a better understanding of the link between age and the ability of earning an income and seeks to share this knowledge in writing. He portrays the opinion that the capacity of bearing risks is mainly based on the age of a person and their capability in generating income from non-investment sources (Malkiel 5).
The author also observes that the risk that is often faced in many investments decreases with the duration of time that the investment lasts. Thus, his perceived audience is made up of investors of all time and age, and he communicates the message to them both formally and informally. Besides, the author creates his ideas typically, basing them on his in-depth understanding of stocks and their values. He also introduces a snip view of the way in which experts in this investment area make an impact. He goes ahead to point out the latest investment technology and the advantages of increasing risk as well as giving a comprehensive analysis of the market theory. The author also describes why some investors make mistakes while others are successful. The book finally introduces the concept of other investors and ‘RANDOMM WALKers’ and passes on this concept through a manual for ‘Random Walkers’ and lifecycle guide for investment enthusiasts (Malkiel 28).
Going by the title of the book, ‘’A Random Walk Down Wall Street,’’ the author tries to adopt a general view on investment while keeping his theme to a step-by-step guide on how to invest and become successful. This book has adopted a thesis that greatly emphasizes on an experience in investments with a great assurance of successful results provided that one plays by the rules of the game. The thesis has been brought out and developed through exposition, description and argumentative techniques. For example, the author outlines facts on investments and how the returns are calculated in every investment activity. Besides, he also goes ahead to describe a few concepts that he thinks are new or have not been explained to the audience as the ‘RANDOM WALKer ideology’ which the author uses in illustrating various concepts to those who are in the investment industry. He also outlines the life cycle guide for investment with the aim of winning over the hearts of his readers. The book also discusses the way in which experts in investment operate and the main reason for this is convincing the audience with the possibility of a step-by-step guide on how to be successful in investment (Malkiel 34).
This review is in concurrence with the statement of the author regarding investment as a random walk in that the future happenings cannot be determined by the past but as a factor of the present operations. This also supports the fact that staying even in an investment is obtained through balancing of the rate of return on investment with the prevalent inflation rates. The firm foundation theory is meaningful by suggesting that investments intrinsic value is a factor of the present activities and future prospects. Besides, the larger the present dividends in a company and their appreciation rate are a good sign that the stock value is also high. This serves as an indicator of the best areas to invest and those to avoid, thereby shielding investors from unnecessary losses. It is also true that the preference of investors would be paying more per share to companies with higher growth rates (Malkiel 44).
In the book, the author strives to attain his goal in communicating to his audience and convincing them to believe that they can invest and have slow but sure returns on their investments. Besides, he provides clear and practical illustrations for communicating his points, specifically, the ‘RANDOM WALKer model’ that has been of interest to many. The author also says that attention and patience are also significant ingredients for investment, the lack of which can lead to drastic and costly outcomes. However, the review does not agree with the statement of the positive relation between risk and return. This statement is not necessarily correct especially when the risk is very large and does not meet the basic logic reasoning in finance. Moreover, the process of quantifying the size of the risk is based on the nature of the investment that is currently being pursued (Malkiel 48).
The life of the author is a sure reflection of his prowess in the field of investment as outlined in the book. Apart from just being a renowned economist with a Masters in Business Administration (MBA) from Harvard University, he holds several high posts in influential companies. Besides, he was a member in the Council of Economic Advisers, worked as president of the American Finance Council, Dean of Yale School of Management among others. In the summary, he has dedicated an entire chapter where he outlines the guidelines on the go zones in investments (Malkiel 57).
He concludes the summary with an outline of the topics covered and guided actions on any case. He factually outlines the possibility of achieving great success even in moves that are considered to be risky. He also systematically illustrates the percentages that one should work with on particular investment areas, thereby making it easier for the readers to understand his theme. This not only gives the illustration of the prowess of the writer in this field but also the fact that his ideology is backed by facts, hence, convincing his readers even more. The book is generally very significant and one that any ambitious or contemporary investor should acquire and read.
Malkiel, Burton. G. A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, New York: NY, W.W. Norton, 2012. Print.