Finance · 01
A Random Walk Down Wall Street
Burton G. Malkiel
Owning the whole market, cheaply and patiently, beats trying to outguess it.
Five questions this book answers, each in a short piece. Read them, or listen as every word lights up.
The island
Nobody can call the weather
Malkiel imagines an island with two businesses, an umbrella maker and a resort. Rainy and sunny seasons are equally likely. In rain the umbrella business earns fifty percent and the resort loses twenty-five. In sun their fortunes reverse.
Own either one alone and every season is a coin toss. Share prices behave much the same way, because what moves them is news nobody saw coming.
Both
Own the umbrellas and the beach
Put a dollar into each. Whatever the weather, one earns fifty cents and the other loses twenty-five. Together they make twelve and a half percent, season after season.
Real businesses rarely offset each other so neatly. They don't have to. A broad, inexpensive index fund spreads you across many kinds of weather, future winners included, and its low costs leave more of the return with you.
The five questions
In the order the book argues them.
- When you cannot quickly replace your savings, why can a successful business or useful new technology still be a terrible investment?The price of a great businessA company's success belongs in the investment calculation. So do the price, the claim you own, and how long you can afford to wait.
- With no privileged information and limited time, why can owning the market beat paying experts to outsmart it, even when prices are wrong?Wrong prices, expensive expertiseFinding a market mistake is only the beginning. The harder test is earning more from it than a simple alternative, after costs.
- When your job and savings can fall together, which risks are worth taking, and how can adding a volatile asset make you safer?The risk you already ownYour paycheck belongs in the picture. What makes an investment risky changes when you consider everything that can go wrong together.
- When one paycheck must cover emergencies, a home, and retirement, how can keeping money 'safe' today put your future security at risk?Safe money has a deadlineA growing balance can still buy less. The right protection depends on whether the money must pay tomorrow's bills or support decades of retirement.
- When your savings must eventually replace your paycheck, how can doing less with your portfolio help your money last longer?Let the plan do more of the workFewer trading decisions can leave more money invested. Saving automatically and spending carefully still take deliberate choices.
The book
Whatever the weather
Malkiel's case runs from tulip bulbs to retirement accounts. What it asks of a saver is short. Own the whole market cheaply, and let the plan do more of the work.
Start with question oneBuy the book
Published by W. W. Norton. Cover shown to identify the book. Burton G. Malkiel drawn as an editorial caricature.
