Nicholas Burton - An Analysis of Burton G. Malkiels a Random Walk Down Wall Street

An Analysis of

Burton G. Malkiels

A Random Walk Down Wall Street

Nick Burton

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CONTENTS

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CRITICAL THINKING AND A RANDOM WALK DOWN WALL STREET

Primary critical thinking skill: EVALUATION
Secondary critical thinking skill: ANAYLSIS

Burton Malkiels 1973 A Random Walk Down Wall Street was an explosive contribution to debates about how to reap a good return on investing in stocks and shares. Reissued and updated many times since, Malkiels text remains an indispensable contribution to the world of investment strategy one that continues to cause controversy among investment professionals today.

At the books heart lies a simple question of evaluation: just how successful are investment experts? The financial world was, and is, full of people who claim to have the knowledge and expertise to outperform the markets, and produce larger gains for investors as a result of their knowledge. But how successful, Malkiel asked, are they really? Via careful evaluations of performance looking at those who invested via technical analysis and fundamental analysis he was able to challenge the adequacy of many of the claims made for analysts success. Malkiel found the major active investment strategies to be significantly flawed. Where actively managed funds posted big gains one year, they seemingly inevitably posted below average gains in succeeding years. By evaluating the figures over the medium and long term, indeed, Malkiel discovered that actively-managed funds did far worse on average than those that passively followed the general market index.

Though many investment professionals still argue against Malkiels influential findings, his exploration of the strengths and weaknesses of the argument for believing investors claims provides strong evidence that his own passive strategy wins out overall.

ABOUT THE AUTHOR OF THE ORIGINAL WORK

Born in 1932, Burton G. Malkiel is one of the most influential American economists specializing in how the stock markets work. After earning an MBA at Harvard University, Malkiel worked for a Wall Street investment firm for a couple of years before moving to academia and gaining a PhD in economics from Princeton. He quickly became a professor, and after a long career is now retired. Malkiel has also acted as a director of many companies, giving him a perspective on both the academic and business worlds. He has served as a member of the Council of Economic Advisers, advising the US president. Malkiel has published numerous books and articles, but is best known for 1973s