Key Takeaways From “A Random Walk Down Wall Street”

Many people believe in planning very  meticulously, unwilling to leave anything to chance. Then others believe that life is a series of random events and leave everything to fate. When it comes to investing nobody can argue that markets can often be highly volatile and difficult to predict. However, the savvy investor will learn to see the patterns in the market such that random events become more intuitive and help in chalking out future events. Burton Malkiel’s, “A Random Walk Down Wall Street” is a modern classic that postulates the theory that the stock markets are mostly efficient and investors must try to capitalise on this inefficiency instead of perennially looking for inefficiencies to exploit.    

Key Take-Aways

• Making money in the stock markets is as not as difficult as they say – market pundits and many other people will have you believe that it is very difficult to make money in the stock markets. However, this is not entirely true. With a disciplined approach to investing, every individual has a chance to make money in the markets.

• Emotions impact our investment decisions – financial theory is based upon the assumption that all investors are rational and make rational investment decisions. On the contrary, investors are often irrational as they are prone to be influenced by their emotions.

• Every stock has a value. Never pay more than it’s worth – there is a difference between the value of a stock and the price of a stock. The price is what you pay and the value is the worth of the stock. Always aim to pay less than the intrinsic value of the stock to optimise returns.

• Ultimately, the market finds true value– in the short-term multiple news flows and developments can impact the price of a stock which keeps it away from its intrinsic value. However, over the long-term, the market noise drowns out and stocks trade at their true value.

• Investors often forget that history repeats itself – there is a wealth of knowledge in reading past patterns and learning from them. It is important to understand that history repeats itself so that we do not make the same mistakes again.

• Investors should take advantage of tax-favoured savings and investment plans – various investments can help investors mitigate their overall tax liability.