IS THE STOCK MARKET A RANDOM WALK?

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One of the best investing books out there is Burton Malkiel’s A Random Walk Down Wall Street. You can buy the book here:

http://amzn.to/2isyc76

It’s a book you should definitely read, if you haven’t already, as it gives a great representation of how Wall Street works over the long term and describes many stock market bubbles, stock valuations through time, the firm foundation theory and the castle in the air theory, and it dismantles technical analysis and fundamental analysis.

Malkiel is strongly in favor of diversification, index funds, proper asset allocation, risk and long term investing, but the biggest value you can get from reading his book is the common sense related to personal investing and how the risk of investing is related to your personal financial situation and financial goals, not so much the stock market if you avoid doing stupid things.

Comments

Shivaramakrishnan Chandrashekher says:

Great book Sven. My dollar cost averaged portfolio is with Wealthfront of which Burton is the Chief Investment Officer. I lover their diversified strategy for small retail investors

ihtfp004 says:

I disagree with the markets being random.  The market is made up of individuals and predicting the behavior of an individual is pretty random, but collectively their behavior can be modeled.  That is why certain patterns appear over and over again and for those that know how to use this opportunity, it's quite profitable.  I would even go as far as the say that the markets are fractal and have repeating cycles.  I feel like saying the markets are random, is just an excuse for not knowing how to trade it.

TheMpamMpam says:

Thx for the review. Are you familiar with Mohnish Pabrai and his book "the dhanho investor"?

Jessee Minkler says:

Did you notice US Congress considering making small investors sell earliest first bought shares in tax plan? So appreciation of price would mean paying higher tax at sale! Hope they don’t pass that!

luckson mwape says:

Please talk about ray dalio principles…Amazing book…

kiran kumar says:

Hi Sven,

Below request is not related to this video, but putting it down here as your most engaging here.

Request: Can you make a video about how to think about the "Maximum position" to take in any stock. Said other way is there a way to think about "optimal position to take in a stock"

Thank you again for all your videos.

Boris Mateev says:

Would you say that ALL technical analysis is BS? I can see how there are tons of unsophisticated investors talking about charting (take a quick look at stock twits for example) that clearly have no idea what they're talking about, but I've also heard some intelligent people refer to it as well. So do you think technical analysis is completely just like astrology, even something like support/resistance that intuitively makes sense? Or do you think there is some limited merit to it for traders and as a value investor you don't care about short term price movements?

Reinhard says:

Maybe it's because analysts are paid to analyze the current situation of a company. That's what they are supposed to do and for what they are paid. And I can understand that, because going into speculations might be a little too risky for a banks reputation so they stick to a very short time horizon. As a private investor I don't have this limitation so I can (try to) look further and apply a more comprehensive view.

Maybe not all price increases are due to inflation. If you have a disireable product you might be able to increase prices above inflation rates as long as higher prices are excepted by costumers. For example I wouldn't mind to buy my hamburger for 1.39 € (prices now are at 1.19 – 1.29 € in my region). I wouldn't care. 1.49 € would be okay too, it's still very cheap – I still wouldn't think about the price. So that might be something to look at as well when analyzing a company.

For example US households have to pay 150 – 200 $/month for their cable TV. If they say let's cancel that and switch to online TV and order Netflix and two other channels, then a household can save a lot of money (plus additional benefit: you don't need to structure your day after TV program, you watch when ever and where ever you like). Netflix is between 11.99 $ and 13.99 $ a month in the US, if those other channels (Disney online channel will be at 5.99 $ per month) are also in that range we end up at 30 – 40 $ a month (or less). Maybe with those 3 channels somebody gets everything he/ she wants to see. So if Netflix would raise prices by 30% and the other online channels as well we would be at 40 – 52 $/ month which is still way cheaper as cable TV. It's a very interesting development going on in the TV market. Think of it, until now a fixed TV program has "ruled us". Now with internet TV we have more freedom: we pick the channel, we pick the film/ series, we pick the time. That's a big change.

Martin Piceno says:

I just started reading that! About halfway through and its very good so far .

Vamsi Anand says:

Thanks Sven.I have seen your video about Intrinsic value.Is there a link for a tool, you can provide all your viewers which can easily help us to calculate Intrinsic value? An example, if I provide EPS, Current Book Value, Growth percentage, Number of years etc, the tool should be able to give me the Intrinsic value.I understand investing is much more complex than that, but for beginniers it should be give a piece of mind as long as they are buying with enough Margin of Safety.I have been following you, Ashwath Damodaran ( NYU Stern school of business) and Seth Klarman for my investing ideas.I enjoy studying all of yours work and what you do for the community.Thank you so much Sven.

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