Key Book: A Random Walk Down Wall Street

Key Books

Burton G. Malkiel’s A Random Walk Down Wall Street is another key book for anyone interested in investing and financial independence.  First published in 1973, Malkiel’s classic has emerged as a go-to resource for those who do not wish to try to beat the market but choose instead to simply track market returns over time.  Indeed, if I were to recommend one investment book to the average investor, A Random Walk Down Wall Street would be that book.

I read Malkiel’s classic when I was about 23 years old, and it set the template for how I invest money for myself and our family.  Frankly, when I have drifted from this approach, I have still tended to make money, but not as much as I would have had I simply stuck with the market and maintained a diversified approach.

The author spent many decades as an academic economist at Princeton, and his book definitely reads like someone without a product to sell.  He has been affiliated with the investment firm Vanguard for many years and is involved in other business ventures presently, but the book was fortunately written long before those affiliations were established.

A Random Walk methodically walks the reader through many different facets of investing, different types of investment vehicles, what works, and what doesn’t work.  One of the chief benefits of the book is that it debunks many investment fads such as technical analysis.  I don’t know–perhaps there is someone out there who has made tons of money tracking technical charts.  However, I haven’t met this person yet; usually, the money-making chartists come in the form of someone with a product to sell you–a magic formula to beat the market.

A Random Walk Down Wall Street covers a lot of ground, and it is difficult to summarize.  It’s a very thorough book, which positive in that after reading it you will have a very good sense of the basics of investing.  To me, there are no stand out quotes that jump out from the book, begging to be included in this blog post.  That said, the bottom line message that you can expect to take from Burton Malkiel is that a) most people do not have the time, right psychological makeup, and business analysis skills to beat the market, b) indeed, even most investment professionals underperform the market, c) most fad investments or those with large fees will underperform the overall market over time, and d) the best approach for nearly all investors is to buy index funds or ETFs, set up a sensible portfolio, and grow wealth over time.

One great advantage of A Random Walk Down Wall Street is that Malkiel suggests specific portfolios asset allocations depending on your stage of life, as well as specific ETFs and index funds.  He has models for different stages of life that you can use as a basic template to start from (of course, first touching base with a financial professional if that is appropriate for your circumstances).

Malkiel’s writing is a bit dry.  Don’t go to this book looking to be entertained.  That said, if you want to significantly expand your basic understanding of the markets, investing, and the perspective advocates of “efficient market” investing, I suggest you read this book a couple of times.

I personally don’t think the markets are efficient.  However, for probably over 90 percent of all investors, they should invest as if the markets were efficient–simply buying index funds, staying diversified, avoiding market timing, and focusing on maximizing earnings in their own careers.  Read A Random Walk Down Wall Street, and profit from it over a lifetime.

One final note.  When markets drop significantly, indexing tends to fall out of favor.  When markets have had a few years of solid returns, indexing looks more attractive.  Remember this fact as you approach your own investing.  Where are we in the business and market cycle?  How is this influencing your thinking?

See other key books on the route to financial independence here.

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