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Summary Article: Burton Malkiel American economist, and author of classic finance book, A Random Walk Down Wall Street from QFinance: The Ultimate Resource
LIFE AND CAREER

Burton Malkiel is an economist and author of the seminal investment book, A Random Walk Down Wall Street. He began his career in investment banking for Smith Barney & Co., before teaching at Princeton, where he became Professor of Economics at Princeton University, and Chairman of the Economics Department. He is a past appointee to the President’s Council of Economic Advisors, and has served on the boards of several financial corporations, including Prudential Financial, and the Vanguard Group. He has also served on several investment manage ment boards, the advisory panel of the investment management firm, Research Affiliates, and the Investment Committee for the American Philosophical Association.

KEY THINKING
  • Malkiel is a leading proponent of the efficient market hypothesis, which contends that prices of publicly traded assets reflect all publicly available information.

  • He argues that stocks are priced so efficiently that no professional can exploit differences in pricing with any consistency. For the personal investor, it is even more difficult to beat the market, as they have to pay management fees, trading costs, and taxes.

  • Also considers how difficult it is to predict which companies are worth investing in, and contends that chance can predict just as successfully as the experts.

  • His solution is to use a widely diversified, low-fee, low-turnover investment strategy such as index funds, or exchange-traded funds.

  • Shows how the benefits of broad diversification in a stock portfolio have been proved over the years, and for investors diversifying into other asset categories, such as bonds, real estate, and cash.

  • Proposes that it is best to index most of a portfolio, and only undertake some stock speculation around the edges, which reduces the risk involved.

  • Describes why investors should place their money in a fund with a level of risk they are comfortable with, and then leave it until retirement.

IN PERSPECTIVE
  • In A Random Walk Down Wall Street, an investment classic that is now in its ninth edition, Malkiel explains why diversification is critical in a portfolio, and argues that asset allocation should always be done appropriately.

  • He has revised the book over the years, re-examining his views on market manias in terms of the internet bubble, and strongly defends efficient markets, and index fund investing.

  • His influential article, “The valuation of closed-end investment company shares,” in the Journal of Finance, discussed why closed-end fund companies trade at market valuations lower than the net value of their assets.

  • Compares the different types of mutual funds and hedge funds in terms of investment opportunities.

“A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by the experts.”

Burton Malkiel
Copyright © Bloomsbury Information Ltd, 2009, 2011, 2012, 2013, 2014

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