A Random Walk Down Wall Street.... BS or good read?

[eastbay]

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I didn't get the sense at all that he was claiming that the market was unbeatable... just that the vast majority of investors don't beat it.

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p. 245 in my edition:

"...no one can consistently obtain overall better returns than the market."

"no one" seems pretty categorical to me.

That's the problem with the book in my view. He takes ideas which are valid on average, or valid to a good approximation, and tries to spin them into absolutes.

The idea that market action is "random" in any traditional (or common) sense of the word can be refuted in about an hour's work.

eastbay

[Redd]

I agree with Desertcat; I found it very inconsistent that Malkiel went from insisting that the market perfectly discounts the price of any given stock by the EV of any black swan events occuring (etc), to presenting his own tips on beating the market. But I'm not educated in the material and read the book a fair while ago.

[sprmario]

Even if you did, I don't think you could discern reliably when they are moving in the opposite direction at a greater rate.

In a bull market I could probably pick a portfolio that is going to be the general market by a significant rate... the problem is that picking a top is almost impossible and you are probably stuck w/ that same type of portfolio on the way down which will underperform at a higher rate.

For example right now I have a 20% of my portfolio in Energy, 25% in International and 20% in Small Cap Value. All are outperforming the general market significantly over the past year or so. When do I get out of these? Is energy going to correct significantly? Are small caps going to stop making significantly better gains than large caps in the next year? who the hell knows.

In poker you compete against one table at a time and just have to be better than those other 9 guys. In the market you are constantly competing against every single person out there simultaneously. I think that for 99.99% of people you are just better off indexing and not worry about putting in the time and effort that must be required to try and beat the market.

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Why is it so hard to believe that not all stocks move at the same rate... and that it is possible to select the stocks where the odds are greater that they will move more than the averages... in the same way that you know some poker hands are better than others.

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[Sniper]

As a poker player, you make quick decisions on the correct +EV play using information you do know and information you do not know!

In this forum, I am talking to poker players that already know how to do the proper critical thinking necessary to make decisions... not the "99.99% of people" who don't.

It is my hope that this forum will help poker players understand the various methods they can use to make the proper decisions... including, whether indexing is right for them.

[skierdude1000]

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For example right now I have a 20% of my portfolio in Energy, 25% in International and 20% in Small Cap Value. All are outperforming the general market significantly over the past year or so. When do I get out of these? Is energy going to correct significantly? Are small caps going to stop making significantly better gains than large caps in the next year? who the hell knows.

In poker you compete against one table at a time and just have to be better than those other 9 guys. In the market you are constantly competing against every single person out there simultaneously. [b] I think that for 99.99% of people you are just better off indexing and not worry about putting in the time and effort that must be required to try and beat the market.[b]



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Why not take your own advice and sell off all your stuff since you are currently luckily outperforming the market? Get out while you are up and go into index funds. That is, if you don't think the market is beatable over time.

[sprmario]

My portfolio is based on a pretty basic allocation. 25% Small caps, 35% Large Caps, 30% International, and 10% Cash. That makes up about 80% of my portfolio. I'll rebalance every 3 years or so, but I'm not going to try and beat the market by timing that. This part is all in index funds. Being in index funds doesn't mean that you can't be in these asset classes. The entire point of passive investing is to not try and guess tops and rebalance needlessly.

The other 20% is in Energy and it was only about 15% when I bought into my fund about 18 months ago. This 20% could be considered my gambooling portion of my portfolio. I worked at a private equity firm at that time and did extensive research in a couple of oil investments for my company. The research pretty much convinced me that oil would continue to outperform for the forseeable future, so I bought into an energy mutual fund at that time.

Everything else is in low cost indexed funds.