Random Walk

by astanhaus

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I had the most lovely solo Sunday afternoon. After successfully sending out my Sunday Brunch with Bettie newsletter, I took a random walk.

I walked east, then west, then north. I ran into friends and chatted. I strutted past an ex. I petted a pomeranian sitting outside of a newly opened cafe.

Sitting down with my shot of espresso and big glass of water, I read the investment classic, A Random Walk Down Wall Street by Burton Malkiel.

Just like why this Dem turns on Fox news every once in awhile, this value investor wanted to understand the index investor’s argument.

(click on the bold-faced vocab words:))

Here are the highlights:

Chimps are stock market champs

“The market prices stocks so efficiently that a blindfolded chimpanzee throwing darts at theWall Street Journal can select a portfolio that performs as well as those managed by the experts.”

The past does not predict the future

“A random walk is one in which future steps or directions cannot be predicted on the basis of past actions. When the term is applied to the stock market, it means that short-run changes in stock prices cannot be predicted. Investment advisory services, earning predictions, and complicated chart patterns are useless.”

Investors are in it for the long haul

“I view investing as a method of purchasing assets to gain profit in the form of reasonably predictable income (dividends, interest, or rentals) 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 often distinguish an investment from speculation.”

Main takeaway: avoid temptation

“Investors who select a portfolio of stocks by throwing darts at the stock listings in the Wall Street Journal can make fairly handsome long-run returns. What is hard to avoid is the alluring temptations to throw your money away on short, get-rich-quick speculative binges. It is an obvious lesson, but one frequently ignored.”

If you want to delve deeper, here is the copy I read.

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(Originally published on Amanda Stanhaus’s financial literacy blog: XO, Bettie.)

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