The Random Walk Guide To Investing

Features

• Cover Type: Paperback with 202 pages
• Published by: W. W. Norton & Company January 30, 2007
• Written in: English
• ISBN 10 Number: 039332639X
• ISBN 13 Number: 978-0393326390
• Book Dimensions: 8.1 x 5.4 x 0.6 inches
• Weighs: 7 ounces

Product Review
Wake up to the nasty little secrets of Wall Streetand start using these 'ten rules for financial success.' -- CBS MarketWatch

Product Description
Simply put, the essential first book for any investor.

Based on the million-copy seller A Random Walk Down Wall Street, this concise new guide by influential and irreverent author Burton G. Malkiel takes the mystery out of personal finance by outlining Malkiel's own ten-point plan for success. Easy to read and easy to follow, this practical book aimed at the investment novice cuts through the jargon to give readers the confidence and knowledge to make wise investment decisions that will provide consistent returns.

Beginning with the basics-"Fire your investment advisor" and "Start now"-Malkiel carefully and with good-humored authority lays out the rest of his "blessedly brief bare-bones guide to investing" (Business Bookpage).

Reader Reviews
This review is from: The Random Walk Guide to Investing: Ten Rules for Financial Success (Hardcover) Burton Malkiel is the author of the incredibly successful investment theory book "A Random Walk Down Wall Street" first published in 1973. Thirty years later, his publisher suggested he writes an investment guide capturing the wisdom from "A Random Walk" in a shorter tome aimed at the layperson. Malkiel did exactly that. In this book, he does a beautiful job in avoiding statistics out of reach for the layperson. Yet the investment advice remains sharp and relevant. Malkiel covers a lot of ground in investments, financial planning, retirement, savings for college, and insurance in just 180 pages. He structures this knowledge through just ten basic rules. Throughout, he includes numerous useful tools. One is the famous rule of 72. If you divide 72 by the investment return, it will tell you how many years it takes to double your investment. Thus, Malkiel covers all the basics and also explores the cutting edge of behavioral economics from the luminaries in this field including Robert Shiller (Irrational Exuberance) and Richard Thaler. This book is just as interesting to the layperson and the investment professional alike. Malkiel advice can be summarized as follows. Save regularly through 401Ks and other means. Invest in low cost mutual funds and index funds across four asset classes (money market funds, bonds, stocks, and REITs). Invest according to your optimal asset allocation which reflects your time horizon (driven by your age), your financial capacity to absorb losses, and your risk tolerance. Take full advantage of tax advantage investments, including 401Ks, IRAs, Education Savings Accounts. The book includes many more fascinating aspects of investing. Malkiel outlines eloquently the benefits of index funds. They incur lower operating costs. They have lower turnover, which leads to lower transaction costs and greater tax efficiency. Consequently, index funds beat actively managed funds by 2 percentage points. Malkiel states this superior performance is a direct result of index funds low cost advantage. The higher cost handicap of actively managed funds is insurmountable over time. As a result, the S&P 500 index beats out 84% of large cap mutual funds over ten years, and 88% over twenty years. This leads to one of Malkiel most surprising point. Two investors investing $1,000 in an IRA earning respective returns of 6% and 8%; the investor earning 8% will have more than twice as much money in his account after forty years ($21,725 vs. $10,286). I thought Malkiel made a typo. I calculated the figures, and he did not. This has huge implication in a long term investment environment where single digit returns will become the norm. Costs matter a lot! On diversification Malkiel includes much original intelligence. He makes a strong case that international diversification is not all what it is cracked up to be. This is because international stock markets move increasingly together when the U.S. one experiences a downturn. Also, he mentions that REITs provide excellent diversification benefits (better than international stocks). I have personally done much research on this subject, using regression analysis. And, Malkiel is correct, even though this fact is unknown to Wall Street. Malkiel recommends different asset allocations for different age brackets (Life-Cycle investing). He tracks how these different asset allocations performed over the past twenty years (January 1983 to December 2002). It is stunning to note that the most aggressive asset allocation targeted to young people with a 65% stock exposure would have earned a 11.52% return or only one percentage point greater than the most conservative one targeted at senior citizens with only 25% stock exposure which earned a 10.51% return. On the other hand, the most aggressive asset allocation would have suffered twenty quarterly losses with the worst one being minus 14.5%; meanwhile the most conservative asset allocation would have incurred only 16 quarterly losses with the worst one being only minus 5.0%. This gives you pause on how much additional risk is it worth taking. Malkiel does also a credible job of explaining the superior long term performance of Warren Buffet and Peter Lynch despite the efficiency of the markets and the overall superiority of index funds. Of the two, he states that Peter Lynch record is much less impressive. He attributes much of Lynch record to the laws of randomness. If you have a 1,000 coin flippers and you make them flip a coin ten times in a row, you will have one coin flipper who will have flipped tails ten times in a row. He will be perceived as a genius. But, he was just lucky. Observing Peter Lynch record, his hand got progressively colder as his Magellan fund became larger and his tenure lengthened. This is exactly what Malkiel expected. Lynch genius was to retire close to the top. He retired at the young age of 46, when his record viewed over his tenure could still be perceived as legendary. Warren Buffet case is completely different. In Malkiel view, he is not so much an investment genius, as a businessman. Buffet has often intervened in running the companies in which he invested when they were faltering. This was the case for the Washington Post, Salomon Brothers, and many other companies Buffet invested in. So, to compare Buffet?s record to the S&P 500 is comparing apples and oranges. Buffet record can't be replicated by any regular investors who have no control over the companies they invest in.