A Random Walk Down Wall Street

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The Time-Tested Strategy for Successful Investing RANDOM WALK DOWN WALL STREET R

Overview

“The past history of stock prices cannot be used to predict the future in any meaningful way.”

In his book “A Random Walk Down Wall Street,” Burton Malkiel takes on a number of investing strategies, axioms, truisms, and superstitions. The central premise of Malkiel’s book is that low-cost index funds will serve the individual investor better than any other strategy for choosing stocks.

A Random Walk Down Wall Street

And inside of this framework, Malkiel addresses the most popular divide in stock analysis: technicals vs. fundamentals.

Technical analysis, practiced by “technicians,” uses the past price movements of stocks to determine where stocks will go next, while fundamental analysis looks at a company’s business to determine if its stock is properly valued.

Malkiel’s basic problem with technical analysis? It doesn’t work.

“For example, technical lore has it that if the price of a stock rose yesterday it is more likely to rise today,” Malkiel writes. “It turns out that the correlation of past price movements with present and future price movements is very close to zero.”

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