Malkiel, Burton G.: Random Walk Down Wall Street, A; Andrew Tobias, The Only Investment Guide You’ll Ever Need

I recently asked the Internet for recommendations for personal finance education resorces, and from the resulting discussion, grabbed two books from the library (as what was in at the time): Burton G. Malkiel’s A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, and Andrew Tobias’s The Only Investment Guide You’ll Ever Need.

A Random Walk Down Wall Street is more theory than practice, as it is a thorough but readable book aimed at one thing: making the case that it’s not a good idea to pick stocks, or as Malkiel puts it,

No one can consistently predict either the direction of the stock market or the relative attractiveness of individual stocks, and thus no one can consistently obtain better overall returns than the market. And while there are undoubtedly profitable trading opportunities that occasionally appear, these are quickly wiped out once they become known. No one person or institution has yet to produce a long-term, consistent record of finding money-making, risk-adjusted individual stock-trading opportunities, particularly if they pay taxes and incur transaction costs.

He starts by describing where stocks get their value, then analyzes traditional and more recent ways that professionals try to pick stock, all in support of his proposition. There were occasionally points at which I had to stop and re-read, but I was often reading this with a sleeping infant in my arms, which has the usual small-mammal sedative effect. On the whole, I found this an engaging and—more importantly—convincing read. The last section has recommendations at a range of detail, from general principles to a specific portfolio. Malkiel has another book, The Random Walk Guide To Investing, but it wasn’t in the library, so I don’t know how it compares.

Tobias’s advice in The Only Investment Guide You’ll Ever Need tracks Malkiel’s as far as they cover similar topics, but Tobias also has suggestions on things like reducing spending, tax strategies, and planning for your family. His book is much chattier, but it knows that it’s not always taking itself seriously (example: the appendix titled “Cocktail Party Financial Quips to Help You Feel Smug”). If you don’t mind that kind of tone, it’s worth a look: its greater detail on specific financial products helped me get oriented and feel more comfortable on the more concrete level. I recommend them both.

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  1. No one person or institution has yet to produce a long-term, consistent record of finding money-making, risk-adjusted individual stock-trading opportunities, particularly if they pay taxes and incur transaction costs.
    Huh. Warren Buffet doesn’t count? I guess what he really does is invest in companies (including, as I understand it, some say in how the company is run) as opposed to “stock trading,” so maybe that’s the distinction.

  2. That is the distinction Malkiel makes, though a quick search-inside-book look at Amazon indicates that he does so in the investment guide book not this one (book’s gone back to library); in addition, he notes that you as a consumer would have a hard time picking who the *next* Warren Buffett would be, and that thanks to the law of probabilities, there’s always a chance that *someone* gets a really good long run going . . . for a while.

  3. I think the author of The Little Book that Beats the Market would disagree with this claim, but I’ll leave it to the experts to decide whether that counts as “long-term”.

  4. Looking at the description, I believe Malkiel addresses the basic premise and discusses the academic studies that have been run regarding it, but again, the book went back to the library.

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