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A Random walk down Wall Street: a time-tested strategy for successful investing

Author: Malkiel, Burton G. Publisher: Norton 2007.Edition: Revised and updated ed.Language: EnglishDescription: 414 p. : Graphs/Ill. ; 24 cm.ISBN: 0393062457Type of document: BookNote: Doriot: for 2012-2013 courses Bibliography/Index: Includes index
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Doriot: for 2012-2013 courses

Includes index

Digitized

A Random Walk Down Wall Street Contents Preface 15 Acknowledgments from Earlier Editions 19 PART ONE STOCKS AND THEIR VALUE 1. Firm Foundations and Castles in the Air 23 What Is a Random Walk? 24 Investing as a Way of Life Today 26 Investing in Theory 28 The Firm-Foundation Theory 28 The Castle-in-the-Air Theory 30 How the Random Walk Is to Be Conducted 33 2. The Madness of Crowds 34 The Tulip-Bulb Craze 35 The South Sea Bubble 38 Wall Street Lays an Egg 44 An Afterword 51 3. Stock Valuation from the Sixties through the Nineties 52 The Sanity of Institutions 52 The Soaring Sixties 53 The New "New Era": The Growth-Stock/New-Issue Craze 53 Synergy Generates Energy: The Conglomerate Boom 56 Performance Comes to the Market: The Bubble in Concept Stocks 63 The Sour Seventies 66 The Nifty Fifty 66 The Roaring Eighties 68 The Triumphant Return of New Issues 68 Concepts Conquer Again: The Biotechnology Bubble 70 ZZZZ Best Bubble of All 71 What Does It All Mean? 73 8 The Nervy Nineties 74 The Japanese Yen for Land and Stocks 74 CONTENTS 4. The Biggest Bubble of All: Surfing on the Internet 78 How Bubbles Arise 78 A Broad-Scale High Tech Bubble 80 An Unprecedented New-Issue Craze 82 TheGlobe.com 84 Security Analysts $peak Up 86 New Valuation Metrics 87 The Writes of the Media 89 Fraud Slithers In and Strangles the Market 92 Should We Have Known the Dangers? 94 A Final Word 96 PART TWO HOW THE PROS PLAY THE BIGGEST GAME IN TOWN 5. Technical and Fundamental Analysis 99 Technical versus Fundamental Analysis 100 What Can Charts Tell You? 102 The Rationale for the Charting Method 105 Why Might Charting Fail to Work? 107 From Chartist to Technician 108 The Technique of Fundamental Analysis 109 Three Important Caveats 117 Why Might Fundamental Analysis Fail to Work? 120 Using Fundamental and Technical Analysis Together 121 6. Technical Analysis and the Random Walk Theory 126 Holes inTheir Shoes and Ambiguity in Their Forecasts 126 Is There Momentum in the Stock Market? 128 Just What Exactly Is a Random Walk? 129 Some More Elaborate Technical Systems 133 The Filter System 133 The Dow Theory 134 The Relative-Strength System 134 Price-Volume Systems 135 Reading Chart Patterns 135 Randomness Is Hard to Accept 136 A Gaggle of Other Technical Theories to Help You Lose Money 138 Contents The Hemline Indicator 138 The Super Bowl Indicator 140 The Odd-Lot Theory 140 A Few More Systems 141 Technical Market Gurus 142 Why Are Technicians Still Hired? 144 Appraising the Counterattack 145 Implications for Investors 148 9 7. How Good Is Fundamental Analysis? 150 The Views from Wall Street and Academia 151 Are Security Analysts Fundamentally Clairvoyant? 152 Why the Crystal Ball Is Clouded 155 1. The Influence of Random Events 156 2. The Production of Dubious Reported Earnings through "Creative" Accounting Procedures 156 3. The Basic Incompetence of Many of the Analysts Themselves 159 4. The Loss of the Best Analysts to the Sales Desk, to Portfolio Management, or to Hedge Funds 160 5. The Conflicts of Interest between Research and Investment Banking Departments 161 Do Security Analysts Pick Winners?--The Performance of the Mutual Funds 164 Can Any Fundamental System Pick Winners? 170 The Verdict on Market Timing 171 The Semi-strong and Strong Forms of the Efficient-Market Theory 172 The Middle of the Road: A Personal Viewpoint 174 PART THREE THE NEW INVESTMENT TECHNOLOGY 8. A New Walking Shoe: Modern Portfolio Theory 179 The Role of Risk 180 Defining Risk: The Dispersion of Returns 181 Illustration: Expected Return and Variance Measures of Reward and Risk 181 Documenting Risk: A Long-Run Study 184 Reducing Risk: Modern Portfolio Theory (MPT) 186 Diversification in Practice 190 10 CONTENTS 9. Reaping Reward by Increasing Risk 197 Beta and Systematic Risk 198 The Capital-Asset Pricing Model (CAPM) 201 Let's Look at the Record 206 An Appraisal of the Evidence 209 The Quant Quest for Better Measures of Risk: Arbitrage Pricing Theory 211 A Summing Up 214 10. Behavioral Finance 216 The Irrational Behavior of Individual Investors 219 Overconfidence 219 Biased Judgments 222 Herding 225 Loss Aversion 229 The Limits to Arbitrage 233 What Are the Lessons for Investors from Behavioral Finance? 237 1. Avoid Herd Behavior 238 2. Avoid Overtrading 240 3. If You Do Trade: Sell Losers, Not Winners 241 4. Other Stupid Investor Tricks 242 Does Behavioral Finance Teach Ways to Beat the Market? 243 11. Potshots at the Efficient-Market Theory and Why They Miss 244 What Do We Mean by Saying Markets Are Efficient? 246 Potshots That Completely Miss the Target 247 Dogs of the Dow 247 January Effect 248 "Thank God It's Monday Afternoon" Pattern 249 Hot News Response 249 Why the Aim Is So Bad 250 Potshots That Get Close but Still Miss the Target 251 The Trend Is Your Friend (Otherwise Known as Short-Term Momentum) 251 The Dividend Jackpot Approach 253 The Initial PIE Predictor 255 The "Back We Go Again" Strategy (Otherwise Known as Long-Run Return Reversals) 256 Contents The "Smaller Is Better" Effect 259 The "Value Will Win" Record 261 11 Stocks with Low Price-Earnings Multiples Outperform Those with High Multiples 262 Stocks That Sell at Low Multiples of Their Book Values Tend to Produce Higher Subsequent Returns 263 But Does "Value" Really Trump Growth on a Consistent Basis? 264 Why Even Close Shots Miss 265 And the Winner Is . . . 267 The Performance of Professional Investors 267 A Summing Up 271 PART FOUR A PRACTICAL GUIDE FOR RANDOM WALKERS AND OTHER INVESTORS 12. A Fitness Manual for Random Walkers 277 Exercise 1: Gather the Necessary Supplies 278 Exercise 2: Don't Be Caught Empty-Handed: Cover Yourself with Cash Resources and Insurance 280 Cash Reserves 280 Insurance 280 Deferred Variable Annuities 282 Exercise 3: Be Competitive--Let the Yield on Your Cash Reserve Keep Pace with Inflation 283 Money-Market Mutual Rinds 283 Bank Certificates of Deposit (CDs) 283 Internet Banks 284 Treasury Bills 285 Tax-Exempt Money-Market Funds 285 Exercise 4: Learn How to Dodge the Tax Collector 286 Individual Retirement Accounts 286 Roth IRAs 288 Pension Plans 289 Saving for College: As Easy as 529 290 Exercise 5: Make Sure the Shoe Fits: Understand Your Investment Objectives 291 Exercise 6: Begin Your Walk at Your Own Home--Renting Leads to Flabby Investment Muscles 298 Exercise 7: Investigate a Promenade through Bond Country 300 12 CONTENTS Zero-Coupon Bonds Can Generate Large Future Returns 301 No-Load Bond Funds Are Appropriate Vehicles for Individual Investors 302 Tax-Exempt Bonds Are Useful for High-Bracket Investors 302 Hot TIPS: Inflation-Indexed Bonds 304 Should You Be a Bond-Market Junkie? 305 Exercise 8: Tiptoe through the Fields of Gold, Collectibles, and Other Investments 306 Exercise 9: Remember That Commission Costs Are Not Random; Some Are Cheaper than Others 308 Exercise 10: Avoid Sinkholes and Stumbling Blocks: Diversify Your Investment Steps 309 A Final Checkup 310 13. Handicapping the Financial Race: A Primer in Understanding and Projecting Returns from Stocks and Bonds 312 What Determines the Returns from Stocks and Bonds? 312 Three Eras of Financial Market Returns 316 Era I: The Age of Comfort 317 Era II: The Age of Angst 319 Era III: The Age of Exuberance 323 The Age of the Millennium 325 14. A Life-Cycle Guide to Investing 329 Five Asset-Allocation Principles 330 1. Risk and Reward Are Related 330 2. Your Actual Risk in Stock and Bond Investing Depends on the Length of Time You Hold Your Investment 331 3. Dollar-Cost Averaging Can Reduce the Risks of Investing in Stocks and Bonds 334 4. Rebalancing Can Reduce Investment Risk and Possibly Increase Returns 338 5. Distinguishing between Your Attitude toward and Your Capacity for Risk 340 Three Guidelines to Tailoring a Life-Cycle Investment Plan 342 1. Specific Needs Require Dedicated Specific Assets 342 2. Recognize Your Tolerance for Risk 343 3. Persistent Saving in Regular Amounts, No Matter How Small, Pays Off 343 Contents The Life-Cycle Investment Guide 345 Life-Cycle Funds 348 Investment Management Once You Have Retired 349 Inadequate Preparation for Retirement 349 Investing a Retirement Nest Egg 350 Annuities 351 The Do-It-Yourself Method 354 13 15. Three Giant Steps Down Wall Street 357 The No-Brainer Step: Investing in Index Funds 358 The Index-Fund Solution: A Summary 360 A Broader Definition of Indexing 363 A Specific Index-Fund Portfolio 366 ETFs and the Tax-Managed Index Fund 367 The Do-It-Yourself Step: Potentially Useful Stock-Picking Rules 369 Rule 1: Confine stock purchases to companies that appear able to sustain above-average earnings growth for at least five years 370 Rule 2: Never pay more for a stock than can reasonably be justified by a firm foundation of value 370 Rule 3: It helps to buy stocks with the kinds of stories of anticipat ed growth on which investors can build castles in the air 371 Rule 4: Trade as little as possible 372 The Substitute-Player Step: Hiring a Professional Wall Street Walker 373 The Morningstar Mutual-Fund Information Service 375 A Primer on Mutual-Fund Costs 376 Loading Fees 377 Expense Charges 377 Turnover Costs 378 The 50-50 Rule 379 The Malkiel Step 379 A Paradox 383 Some Last Reflections on Our Walk 384 A Random Walker's Address Book and Reference Guide to Mutual Funds 387 Index 397

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