My Favorite Quotes from the 12th Edition of A Random Walk Down Wall Street by Burton G. Malkiel

Updated: Mar 4

Markets and Market Pricing

  • “[Ninety-five] percent of the significant market gains over a thirty-year period came on 90 of the roughly 7,500 trading days. If you happened to miss those 90 days, just over 1 percent of the total, the generous long-run stock market returns of the period would have been wiped out.”

  • “The market eventually corrects any irrationality – albeit in its own slow, inexorable fashion.”

  • “[P]ast movements in stock prices cannot be used reliably to foretell future movements.”

  • “The financial laws of gravity know no geographic boundaries.”

  • “One is tempted to conclude that a very important factor in determining performance ranking is our old friend Lady Luck.”

  • “The efficient market hypothesis does not imply, as some critics have proclaimed, that stock prices are always correct. In fact, stock prices are always wrong. What EMH implies is that no one knows for sure if stock prices are too high or too low.”

  • “Discounting basically involved looking at income backwards.”

  • “An investment is worth a certain price to a buyer because she expects to sell it at a higher price.”

  • “Markets can be highly efficient even if they make errors.”

  • “Markets are not always or even usually correct. But NO ONE PERSON OR INSTITUTION CONSISTENTLY KNOWS MORE THAN THE MARKET.”

  • “The decision not to sell is exactly the same as the decision to buy the stock at the current price.”

Speculation

  • “Steer clear of any hot tips. They are overwhelmingly likely to be the poorest investments of your life.”

  • “Your only protection is to realize that anything that seems too good to be true undoubtedly is untrue.”

  • “[S]tupidity well packaged can sound like wisdom.”

  • “[I]nvestors should be very wary of purchasing today’s hot ‘new issue.’”

  • “Any investment that has become a topic of widespread conversation is likely to be hazardous to your wealth.”

  • “The proliferation of publications was a classic sign of a speculative bubble.”

  • “People who would spend hours researching the pros and cons of buying a $50 kitchen appliance would risk tens of thousands on a chat room tip.”

Timing the Market

  • “Invariably, the hottest stocks or funds in one period are the worst performers in the next.”

  • “There is no way to consistently beat the market by purchasing the mutual funds that have performed best in the past.”

  • “[T]he best-performing funds in one period of time are not the best performers in the next period.”

  • “[F]ew investors who try to trade in and out of stock each day make profits.”

  • “The point is that market timers risk missing the infrequent large sprints that are the big contributors to performance.”

  • “Any regularity in the stock market that can be discovered and acted upon profitably is bound to destroy itself.”

  • “I am not suggesting that it is impossible to beat the market. But it is highly unlikely.”

  • “[T]here will always be some who have called the last turn or even the last few turns, but none will be consistently accurate.”

  • “The point is that it is highly unlikely you can beat the market. It is so rare that it’s like looking for a needle in a haystack.”

  • “The market is so efficient – prices move so quickly when information arises – that no one can buy or sell fast enough to benefit.”

  • “Frequent traders invariably earn lower returns than steady buy-and-hold investors.”



Experts

  • “The Standard & Poor’s 500-Stock Index, a composite that represents about three-quarters of the value of all U.S.-traded common stocks, beats most of the experts in the long haul.”

  • “Index funds have regularly produced rates of return exceeding those of active managers.”

  • “If you feel you must get an investment advisor, make sure that advisor is a ‘fee only’ advisor.”

Psychology

  • “An understanding of how vulnerable we are to our own psychology can help us avoid the stupid investor delusions that can screw up our financial security.”

  • “[S]uccessful investing demands both intellectual and psychological acuteness.”

  • “Even if stock prices move randomly, you shouldn’t.”

  • “[I]t is incredible how many people go astray by mismatching the types of securities they buy with their risk tolerance and their income and tax needs.”

How to Invest in the Stock Market: “Remember the overarching rule for achieving financial security: keep it simple.”


Saving

  • “The hard truth is that the most important driver in the growth of your asset is how much you save, and saving requires discipline.”

  • “The single most important thing you can do to achieve financial security is to begin a regular savings program and to start it as early as possible.”

  • “It is critically important to start saving now. Every year you put off investing makes your ultimate retirement goals more difficult to achieve. Trust in time rather than in timing.”

  • “You can only get poor quickly. To get rich, you have to do it slowly, and you have to start now.”

  • “Life is a risky proposition, and unexpected financial needs occur in everyone’s lifetime.”

  • “[E]veryone needs to keep some reserves in safe and liquid investment to pay for an unexpected medical bill or to provide a cushion during a time of unemployment.”

Portfolios

  • “[A]n investor who simply buys and holds a broad-based portfolio of stocks can make reasonable generous long-run returns.”

  • “[F]or investors who are starting the build an equity portfolio in planning for retirement, standard capitalization-weighted index funds are the appropriate first investments they should make.”

  • “An investor who frequently carries a large cash position to avoid periods of market decline is very likely to be put out of the market during some periods where it rallies smartly.”

  • “For most investors, especially those who prefer an easy, lower-risk solution to investing, I recommend bowing to the wisdom of the market and using domestic and international index funds for the entire investment portfolio. For all investors, however, I recommend that the core of the investment portfolio – especially the retirement portion – be invested in index funds or ETFs.”

  • “The core of every portfolio should consist of low-cost, tax-efficient, broad-based index funds.”

  • “I recommend that your serious money set aside to provide for a comfortable retirement be invested in a diversified portfolio of index funds.”

  • “With index funds, you know exactly what you are getting, and the investment process is made incredibly simple.”

  • “Broad diversification rules out extraordinary losses relative to the whole market. It also, by definition, rules out extraordinary gains.”

  • “[I]nvestors should not buy a U.S. stock-market index fund and hold no other securities.”

  • “Buffett has stipulated in his will that cash from his estate be invested solely in index funds.”

  • “[T]he use of leverage is one investment technique that needs to be in the investor’s tool box…. [T]he technique should be judged as being appropriate in some circumstances for investors who hold a broadly diversified portfolio (including international securities) and wish to enhance the entire portfolio’s return and risk with the use of leverage.”

Holding Period

  • “The correct holding period for the stock market is forever.”

  • “Live modestly and don’t touch the money that’s been set aside….[R]emember, the only thing worse than being dead is to outlive the money you have put aside for retirement.”

  • “[A] simple buy-and-hold strategy using a portfolio consisting of all the stocks in a broad stock market index has provided investors with an average annual rate of return of about 10 percent over the past ninety years.”

Investment Costs

  • “There is much about investing you cannot control. You can’t do anything about the ups and downs of the stock and bond markets. But you can control your investment costs.”

  • “[T]he index fund is a sensible, serviceable method for obtaining the market’s rate of return with absolutely no effort and minimal expense.”

Real Estate: “As long as the world’s population continues to grow, the demand for real estate will be among the most dependable inflatio

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