I recently finished reading the 9th edition of Burton Malkiel’s classic text [1] A Random Walk Down Wall Street.  First published in 1973, this book is a classic text that deserves a place on any investor’s bookshelf. 

Malkiel presents two possible security valuation models - one based on a firm foundation of value and one based on finding a “greater fool” to sell your speculative buys to.  He analyzes the history of investment bubbles from the Dutch tulip mania some two hundred years ago all the way through the tech stock bubble of the late 1990s.  He discusses fundamental analysis of stocks and thoroughly trashes technical analysis.  Finally, Malkiel presents a strategy that virtually guarantees that your investments will keep pace with the market with minimal investment of time.

I enjoyed and recommend this book for several reasons.  First and foremost, it blows the whistle on many common “beat the market” strategies, including all manner of technical analysis.  As a relatively young investor, I was always intimidated by the chartist strategies (moving averages, buy points, etc) but after reading Malkiel there is no cause for fear.  Those strategies simply do not work.

Moreover, I found the book to be an easy read relative to many texts on investment.  While he covers different types of stock analysis, modern portfolio theory, the efficient market hypothesis, and asset allocation in detail, the book is not weighted down with too much heavy terminology.  His writing style, use of historical anecdotes, and ability to challenge your beliefs again and again keeps you riveted to the book.

Finally, I believe that the strategies presented in the book are clear, concise, and can be employed by anyone to their immense gain.  Too many people pay for poor investment advice, make mistakes by chasing gains and paying for active portfolio management, or even pay absurd 12b-1 fees on underperforming mutual fund investments.  By reading this book and taking Malkiel’s advice to heart, I believe that just about anyone can end up with more dollars in hand.

On the other hand, the book does delve into financial topics that may be intimidating for someone completely new to the investment world.  The basic message (buy and hold a well-diversified portfolio of extremely low-cost index funds) could be expressed much more succinctly.  However, I wouldn’t change a thing with this book…just be prepared for a wild ride that challenges everything you thought you knew about investing.

[1] A Random Walk Down Wall Street, 9th edition by Burton Malkiel: a must read!