Walter P.
St. Louis, Missouri

Mark Guerrero
Dallas, TX

Charles Snell
Beverly Hills, CA

Robert Stroz
Reno, NV

StocksAtBottom.Com Book Reviews

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition
by Burton G. Malkiel

I want to give you ACTIONABLE INFORMATION that can help you today with your investments currently. I am familiar with the arguments both pro, and con against the Random Walk hypothesis. Others have written extensively with eloquence and in great depth whether it is correct or wrong, and have explained it thoroughly in great detail.

The essence of the theory and this book is that PEOPLE SIMPLY CANNOT BEAT THE MARKET over time. You are better off INDEXING TO THE MARKET. There is a plethora of ways for you to do this. Read any of the wonderful books written by John Bogle, the MASTER of the Index Fund concept. He is a wonderful writer also. Try his "Common Sense on Mutual Funds".

Indexing is highly valuable because you essentially do as well as the market does over time - NO BETTER AND NO WORSE. We also know that the vast majority of professionally managed money performs poorly versus the INDEX. There is no argument on this point. I have observed that for the vast majority of investors today, they are better off indexing to the market.

Now having said that, and being in the industry, I have seen too many people BLOW AWAY the index rate of return to accept the Efficient Market Theory. I have watched close up on a personal level as a partner of a major Wall Street firm, Buffett , John Templeton, Larry Tisch, Andre Meyer (the man behind Lazard), Peter Lynch, Leon Levy (the genius at Oppenheimer), Jack Dreyfus, Ace Greenberg (Bear Stearns), Bob Wilson (the best short artist I have ever known), Charlie Allen (Allen and Company), Michael Steinhart, Jimmy Rogers, and George Soros literally year after year be right, and amass hundreds of millions of dollars, and sometimes billions for themselves by their brilliance, patience, and being ahead of the crowd.

What did they have in common? They had a unique capacity to cut to the chase in an investment. They were smarter than most investors, yes, but some of them weren't the geniuses that others believe them to be. They had clarity to their thinking. It could be emulated, studied, and replicated.

Without question, they drilled down deeper into an investment than 99% of their fellow investors. What they knew, they knew with certainty. They might be early, but they were seldom wrong. Do you think Buffett  has made MANY poor investments? He's made a few, but not many.

John Templeton, who is right up there with Buffett  as an investor, told me one day, "Rich, investments are just common sense." We were sitting in a meeting on a Saturday, in a hotel years ago, and I handed him a coke, it was the kind with the newly developed twist off cap at the time.

He asked for a bottle opener. I said, "John, you twist it off". He didn't believe me at first. When he saw how it worked, he took a magnifying glass out of his pocket and looked at the cap, and then what he said was profound. "I guess we could call Coca Cola up on Monday, and see who makes these things. Probably a million people in America opened coke bottles that day, oblivious to investment merits of a bottle-cap. What I am illustrating is how you make ALPHA, or the EXTRAORDINARY RETURNS we all so sorely want? Forgive me for the stories, but they are priceless.

The MASTERS are not LUCKY INVESTORS. You don't create a lifetime of success FIVE STANDARD DEVIATIONS FROM THE MEAN, and still believe in RANDOM WALK. In a room with Warren Buffett , he would tell you he doesn't believe in random walk.

Let me leave you with one way that all the MASTERS have become rich from my observations of them close up. Every one of them takes advantage of compounding, while everyone else is working with simple arithmetic returns. You already know that straight arithmetic returns cannot compare to an exponential return. Buffett  goes out far enough in his investments - he would tell you forever, to derive a compounding rate of return.

You must find investments that will throw off a 15% to 20% rate of return and ride those investments for decades. When COMPOUNDING kicks in after several doubles, you start to make a killing, while ever one else is looking for that simple return. First however, you must pick companies that will last. This is why Buffett  never, ever buys a technology stock. He can't go out far enough with it. So you ask me, "Great Rich, how do you find those"?

They are out there. You won't find them in the tech stocks, which usually collapse after about a seven year run according to the Harvard studies. You need to find the boring companies that just keep printing money consistently in a predictable fashion. Proctor & Gamble has been an interesting example for decades. A billion in sales in the 1970's, now up to about $70 plus billion. I can make a list from my head of a 100 boring companies that are up thousands of percent in the last several decades. Peter Lynch is a 100 percent right when he says, "Over time, stock value tracks earnings."

If you want Random Walk, you execute by buying INDEX FUNDS. From the early 1980's until now the Dow Jones alone is up about 1500%. Very few managed portfolios match that return. If you think however that you want to go after the elusive ALPHA return, than go for it. Study the MASTERS; there is nothing new under the sun. What worked 2 centuries ago for the Rothschild's, or 80 years ago for Bernard Baruch, can still have meaning today and good luck on your journey.