Summary of Burton G. Malkiel's A Random Walk Down Wall Street

Everest Media

Description

Please note: This is a companion version & not the original book.
Sample Book Insights:
#1 This book is a guide for the individual investor. It covers everything from insurance to income taxes. It will teach you how to buy life insurance and avoid getting ripped off by banks and brokers. It will also tell you what to do about gold and diamonds.
#2 The stock market is a random walk, meaning that future steps or directions cannot be predicted based on past history. When the term is applied to the stock market, it means that short-run changes in stock prices are unpredictable.
#3 I have been a lifelong investor and have participated in the market. I have a lot of facts and figures to share. Don’t let that scare you. This book is written for the financial layperson and offers practical, tested investment advice.
#4 Investing is the process of purchasing assets to gain profit in the form of reasonably predictable income and/or appreciation over the long term. It is the definition of the time period for the investment return and the predictability of the returns that distinguishes an investment from a speculation.

Sujets

• Investment
• Personal finance

Informations

• Publié par: Everest Media LLC
• Date de parution: 24 mars 2022
• Nombre de lectures: 1
• EAN13: 9781669359777
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Insights on Burton G. Malkiel's A Random Walk Down Wall Street
Contents Insights from Chapter 1 Insights from Chapter 2 Insights from Chapter 3 Insights from Chapter 4
Insights from Chapter 1

#1

This book is a guide for the individual investor. It covers everything from insurance to income taxes. It will teach you how to buy life insurance and avoid getting ripped off by banks and brokers. It will also tell you what to do about gold and diamonds.

#2

The stock market is a random walk, meaning that future steps or directions cannot be predicted based on past history. When the term is applied to the stock market, it means that short-run changes in stock prices are unpredictable.

#3

I have been a lifelong investor and have participated in the market. I have a lot of facts and figures to share. Don’t let that scare you. This book is written for the financial layperson and offers practical, tested investment advice.

#4

Investing is the process of purchasing assets to gain profit in the form of reasonably predictable income and/or appreciation over the long term. It is the definition of the time period for the investment return and the predictability of the returns that distinguishes an investment from a speculation.

#5

Investing is a skill that requires work. It is fun to compete against the investment community and to be rewarded with an increase in assets. It is exciting to review your investment returns and see how they are accumulating faster than your salary.

#6

The three theories of asset valuation are the firm-foundation theory, the castle-in-the-air theory, and the new investment technology. They are mutually exclusive, and it is essential to understand them if you are to make sensible investment decisions.

#7

The firm-foundation theory states that each investment instrument has a firm anchor of intrinsic value, which can be determined by careful analysis of present conditions and future prospects. When market prices fall below this firm anchor of intrinsic value, a buying opportunity arises.

#8

The firm-foundation theory is not limited to economists. It has been embraced by a whole generation of Wall Street security analysts, who believe that sound investment management consists of buying securities whose prices are temporarily below their intrinsic value and selling ones whose prices are temporarily too high.

#9

The castle-in-the-air theory of investing focuses on psychic values. It states that professional investors prefer to devote their efforts to analyzing how the crowd of investors is likely to behave in the future and how they tend to build their hopes into castles in the air.

#10

The castle-in-the-air theory states that a certain price is worth because someone else is willing to pay more. There is no reason other than mass psychology. All you have to do is beat the gun and get in early.

#11

The investment world is full of crazes, both past and present. Some readers may pooh-pooh the public rush to buy tulip bulbs in the seventeenth century Netherlands, or the eighteenth-century South Sea Bubble in England. But no one can disregard the new-issue mania of the early 1960s, or the Nifty Fifty craze of the 1970s.

#12

The psychology of speculation is a theater of the absurd. The buildings that were constructed during these performances were based on Dutch tulip bulbs, English bubbles, and American blue-chip stocks.

#13

The tulip-bulb craze was one of the most spectacular get-rich-quick binges in history. It began in 1593 when a professor from Vienna brought to Leyden a collection of unusual plants that had originated in Turkey. The Dutch were fascinated with these new additions to the garden, and the more bizarre the bulb, the more people valued it.

#14

The history of the tulip market is a tragicomic example of the irrationality of the human mind. The price of a single tulip bulb would fluctuate, but not twentyfold. There was no rational explanation for these prices, and eventually panic reigned.

#15

The South Sea Company was a British company that was formed in 1711 to restore faith in the government’s ability to meet its obligations. It took on a government IOU of almost £10 million. As a reward, it was given a monopoly over all trade to the South Seas.

#16

The South Sea Company, a British company, was formed to trade with Spain. It attracted speculators and their money from throughout the Continent. The word millionaire was invented at this time, and no wonder: The price of Mississippi stock rose from £100 to £2,000 in just two years, even though there was no logical reason for such an increase.

#17

The South Sea Company was the first bubble company to be exposed, and it was a disaster. The company was started to raise money to pay for the wars in America. However, the public believed that the price of the company’s shares would go up, and they sold out in the summer.

#18

The 1920s was a time of great prosperity in America. Stock-market speculation was a national pastime in 1928, and the country had unrivaled growth. However, not everyone was speculating in the market.

#19

The pool manager would feed stock into the market, and as the public bought it, the pool would sell it. The illusion of activity was created by so-called wash sales, which generated the impression that something big was afoot.

#20

On September 3, 1929, the market averages reached a peak that was not to be surpassed for a quarter of a century. The endless chain of prosperity was soon to break, and general business activity had already turned down months before.

#21

The stock market crash of 1929 was the result of a boom that had been caused by the 1920s prosperity, and the most devastating depression in history followed. Very sharp increases in stock prices are seldom followed by a gradual return to relative price stability.

#22

The fundamental value of closed-end investment company shares is the market value of the securities they hold. In most periods since 1930, these funds have sold at discounts of 10 to 20 percent from their asset values. From January to August 1929, however, the typical closed-end fund sold at a premium of 50 percent.

#23

The market is not hard to understand, but it is hard to avoid the alluring temptation to throw your money away on short, get-rich-quick speculative binges. It is an obvious lesson, but one that is frequently ignored.

#24

Institutions, not the pros, were the main reason that the New York Stock Exchange was able to avoid the excesses of the past. They participated in several distinct speculative movements from the 1960s through the 1990s, anticipating that some greater fools would take the shares off their hands at even more inflated prices.

#25

The mania for growth stocks in the 1960s was similar to the South Sea Bubble in its intensity and also in the fraudulent practices that were revealed. It was called the tronics boom because the stock offerings often included some garbled version of the word electronics in their title.

#26

The Securities and Exchange Commission was there to protect investors, but by law it had to stay quiet as long as a company had prepared an adequate prospectus.

#27

The tronics boom came back to earth in 1962. Many professionals refused to accept the fact that they had speculated recklessly. Very few pointed out that it is always easy to look back and say when prices were too high or too low.

#28

The financial market is able to provide products that are demanded. The product that all investors desired was expected growth in earnings per share. If growth couldn’t be found in a name, it was a good bet that someone would find another way to produce it.

#29

The trick that makes the game work is the ability of the electronics company to swap its high-multiple stock for the stock of another company with a lower multiple. The candy company can sell its earnings only at a multiple of 10, but when these earnings are averaged with those of the electronics company, the total earnings could be sold at a multiple of 20.

#30

The music slowed drastically for the conglomerates on January 19, 1968, when the granddaddy of the conglomerates, Litton Industries, announced that earnings for the second quarter of that year would be substantially less than had been forecast. The market reacted with disbelief and shock. In the selling wave that followed, conglomerate stocks declined by roughly 40 percent.

#31

The aftermath of the alchemy game showed that conglomerates could not always control their far-flung empires. And the government and accounting profession were concerned about the pace of mergers and possible abuses. This reduced the premium multiples that were paid in anticipation of earnings growth.

#32

The magic word was performance. Investment funds began to concentrate their portfolios in dynamic stocks, which had a good story to tell. They would switch when the market recognized a better story, and for a while, this strategy worked well.

#33

The concept that Wall Street bought from Cortes Randell was that a single company could specialize in servicing the needs of young people. However, the stocks performed poorly because their price-earnings multiples were inflated beyond reason.

#34

The 1970s saw the return of sound principles on Wall Street, with institutions investing in the Nifty Fifty, a group of forty-plus growth stocks. They ignored the fact that no company could ever grow fast enough to justify an earnings multiple of 80 or 90.

#35

The high-technology, new-issue boom of the first half of 1983 was similar to the 1960s episodes, with the names altered to include the new fields of biotechnology and microelectronics. The total value of new issues during 1983 was greater than the cumulative total of new issues for the entire preceding decade.

#36

The biotechnology