Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at
Burton Malkiel, Ph.D. , Ph.D., is the Chemical Bank Chairman’s Professor of Economics at Princeton University. The 10th edition of his widely read investment book, “A Random Walk Down Wall Street” (W. W. Norton & Company, 2011), was recently published.


Stephen from CA posted over 6 years ago:

Let's hope AAII initiates much more coverage of international investing, and extends the stock screens to apply them to foreign markets.

John from OR posted over 6 years ago:

Very interesting.
Perhaps I've been putting to much time into my
portfolio. Rebalancing twice a year seems an attractive dream.
But what % should go where? Or what are the guide lines? National GDP/World GDP?
I guess he wants one to buy his book to learn of his suggestions.
Has AAII tested his or some similar models?

SM from TX posted over 6 years ago:

I mean this means shadow stock portfolio outperforming the market is just LUCK???

Mel from TX posted over 6 years ago:

Malkiel makes a good case for random prices and efficient markets, however I believe Shleifer and other Behavior Finance researchers present a much more compelling arguement for inefficient markets and investor sentiment.

As with most things, the truth probably is somewhere in between.

Marvin from OH posted over 6 years ago:

AAII provides a wealth of information but everytime I get close to settling on a strategy I read a new article with a conflicting perspective. How do the rest of you deal with information overload?

Mel from TX posted over 6 years ago:

One reason the shadow stock portfolio may perform so well is because there is not as much news or noise surrounding the smaller companies in the portfolio. No news is good news and no noise is good news. Also, smaller companies that perform may tend to trade more on the fundamentals, and, in this segment at least, companies that perform, reward.

MORRIS from CO posted over 6 years ago:

This author presents the same old story. He is in a corner and wrong.
He has done this for at least 15 years. I would be more careful presenting such views. P & F charting works. Relative strength analysis works. This article is off-base in our opinion. I will confess I do not hold a graduate degree from Princeton. Neverless, I do have an MBA but
not from an Ivy League School.

Bill from OR posted over 6 years ago:

Does anyone know an ETF or Mutual Fund that diversified and rebalances as described by BM? I would use this fund for my core money and then use my gambling money to bet on individual stocks.

Larry from IL posted over 6 years ago:

The efficient market hypothesis posits that the market prices in all news and information, which isn’t of much use when the majority of “news and information” is market hype that causes investors to “build castles in the sky.” Irrational investor behavior will continue to create extended, unpredictable departures from the mean. Conclusion: the best you can hope to do, without uncounted hours of research and analysis, and lots of luck, is to own a diversified portfolio of low-cost index funds and not gain (or lose) more than the market. This is not very comforting if the start of your retirement happens to coincide with a long period of below-average or negative returns.

Jane from CA posted over 6 years ago:

Surely there are better and worse times for accumulating a position in any investment--stocks vs. bonds, cap styles, U.S. vs. int'l, etc. Technical analysis should also be part an initial investment decision.

Rebalancing is a must -- don't set and forget. Rebalancing shouldn't just be done at the end of a calendar year (when everyone else is doing it). If retirement accounts are being rebalanced, it doesn't matter the tax consequences short/long term capital gain. Better lock in your gains at some point!

I don't trust funds that rebalance for you, as I would like to make these decisions for myself.

Stephen from OH posted over 6 years ago:

Charles Rotblut's interview with Burton Malkiel causes me to wonder (again) if apply Random Walk should also be applied to portfolio strategies. That is, perhaps a diversified truly portfolio should not only include Professor's Burton's portfolio approach, but also separate sub-portfolios made up of varying disciplines that might include trend, relative strength, or some other technical based strategies with each diversified among the suggested sectors. After all, the portfolio make up proposed in Professor Malkiel's book may or may not be the correct strategy over the next 10 or 20+ years if asset class correlations and relative returns veer toward previously undefined territory. Why not hedge by using two or three approaches that have shown reasonable risk adjusted returns that have low correlations? My guess would be that for most individual investors, today's liquidity, low costs, and educational resources (such as AAII) make a variety of various strategies sensible alternatives to using one methodology that relies primarily on periodic rebalancing into asset classes that may or may not perform in a manner that is consistent with their historical risk, returns, and correlations.

R E from GA posted over 6 years ago:

There are two sides to this intellectual debate: Dr. Malkiel's and that of Andrew Lo & Craig McKinley, who documented anomalies that seem to prove Dr. Malkiel wrong, in their book, A Non-Random walk Down Wall Street (about 10 yrs ago.

It also ignore the findings of the pioneers in Behavorial Finance who have documented that the reaction times to news in the market varies greatly amongst investors. This finding has oft been cited as the reason for the "Value" Anomaly" used by Warren Buffett, and the "Momentum Anomaly" used by William O'Neill.

The interview is thus incomplete for now...

Herschel from NJ posted over 6 years ago:

I once read that "streaks" don't exist in basketball. That is, regardless of how many baskets are made in a row, the probability of a player making the next basket is still the same as their long term percentage. Just like the coin flipping, but anyone who ever watched basketball would swear players get hot or go cold. So what is the truth? Watch the ncaa tourney.

If stock prices were a 'random walk' then they would be subject to variance analysis. That is, when a stock price moves (randomly) two sigma below its moving average, without change in fundamentals, then the stock should rise. (This is not pure or just reversion to mean) I have found that "good" stocks trading at low price and low volumne to their means do better than "the market".

Harry from FL posted over 6 years ago:

Thanks for the article.

At any casino, crowds gather around a player on a hot streak. If s/he quits before the streak ends, s/he leaves to applause, and possibly offers of compensation for revealing the "secret."

If s/he continues against the house to the end, all is ultimately lost. Unless, of course, the house goes broke, and everyone settles for the status quo.

The alternative for sensible investors managing their own money and not blessed with the gift of prophecy, is buying the market ala Jack Bogle.

bkpark from CA posted over 6 years ago:

"AAII provides a wealth of information but everytime I get close to settling on a strategy I read a new article with a conflicting perspective. How do the rest of you deal with information overload?"

It's typical of economists; they usually don't even agree with themselves. As the saying goes, if you ask 10 economists for their opinion on something, you'll get 20 different answers.

I usually go with the one I find more convincing, and learn to ignore the ones I don't (i.e. tune out the noise).

FWIW, I don't find the professor's view here terribly convincing: what he's actually arguing is for some sort of *perfect* efficiency of the markets (you never get perfect efficiency in real world), and if what he was arguing were true, many people on Wall St. won't have a job (at least if people were rational---BTW, if people weren't perfectly rational, there's no reason for market (which is composed of people) to be perfectly rational).

Since the latter is clearly not true and former isn't all that convincing (yes, market is probably efficient, but does it have to be 100% efficient? Isn't it possible it only gets the correct pricing somewhere within 5% of true value and fluctuates around that depending on how people feel?), I find his view not all that convincing.

James from VA posted over 6 years ago:

How do index funds make stock prices more predictable?

Percy from IL posted over 5 years ago:

If Malkiel is right how come emperical research shows that a trend following strategy using anything between a 2 day and a 300 day simple moving average crossover of the Dow Jones/ S&P500 indices has beaten these indices over the last 100 years? Even the strongest proponent of buy and hold - Prof Jeremy Siegel in his book Stocks for the Long Term - admitted this was true when he tested a 200 day moving average crossover strategy between 1875 and 2005. If he had included the bear market of 2007-09, the results would have supported a trend-trading approach even more convincingly. Professional market timers like uses both trend and momentum measures to reduce downside market risk while also beating a buy and hold approach to holding a market index linked exchange traded fund (ETF).

PG from NY posted over 5 years ago:

Let's get something straight here: Nobody, and I do mean NOBODY, can persistently beat their benchmark index over the long haul after factoring in commissions, fees, and taxes. I have read every investment book I can get my hands on, including academic studies and research papers. If you think it can be done you're like the person who thinks psychics can find missing persons, or that dowsers can find underground water. They might get lucky once in a while, but over time their success rate will match pure chance from a statistical standpoint. If you want to do better than 99% of all investors AND get a good night's sleep, split up your portfolio among several broad-market low-cost index funds so that you own every segment of the market, and then rebalance whenever any fund drifts more than 20% from the target allocation (i.e. when a 10% stake shifts to below 8% or above 12%). You'll thank me later, trust me.

David from IA posted over 5 years ago:

Also, using the statistics at reference AND , I would recommend only the S&P MidCap 400 Growth.

I believe that one should get out or trim back by 50% on index funds when the ^VIX is > 32 and definitely in an uptrend. Re-entry should be when the uptrend is definitely reversed. To prove this, one can use, say, Yahoo Finance to compare the graphs of ^VIX and ^GSPC.

Paul from NY posted over 5 years ago:

I guess if I wrote a book I would want to defend the premise.

Like the economists like to talk about the Great Moderation... they had everything figured out on how to manage the economy.

How about everything is price in... if this professor is from Princeton he should walk over to Daniel Kahneman's office and get an education.

We can time the market, and we can use charts to tell us when to get into and out of ETFs and rebalancing is critical.

Also we can use options to increase our rate of return..

In 2011 we beat the S&P by 25 times over.

Please don't listen to the people who want you to think you are helpless.

Why they want you to use financial planners when with computers, charting packages, real time info, ETFs, a bull and bear indicator, and options and EDUCATION... you can do better.

Otherwise go get another copy of the professor's book.

Jon F. from OH posted over 5 years ago:

I fully agree with David's comments above.

This opinion is a generalization based on slanted research. John Neff maintains the same views. The random numbers example with children is "cute" but is also worthless. The key with interpreting charts in technical analysis is not looking for the chart to give you the buy vs sell answer, but instead to understand what the indicators are telling you about market movements, especially those due to accumulation and distribution which lead to the "cycles" through which securities move.

An astute individual not only CAN time the market but can outperform many so called investment advisors. I don't say that everyone can do this but with proper study, instruction from experienced traders including continued performance review, individual investors can time the market or individual stocks and ETF's. A trader has to learn to control their emotions, the biggest hurtle for individual investors, and maintain accurate trading records, which should be reviewed on a regular basis. This internal QC will provide a "continuing education" program to constantly assess and improve one's performance. Lastly, strict money management skills are mandatory.

Plus, many individual investors - I would suspect the majority of AAII members - are not "traders" but rather "investors" using their study & interpretation of fundamental analysis to choose their stocks with a longer time horizon than technical traders.

The key is the individual must be willing to take on the RESPONSIBILITY of managing at least a portion of their portfolio. Quite possibly the majority of folks don't want to do this which will provide many customers for the traditional investment management companies.

James Fretty from WI posted over 5 years ago:

Assume an experienced investor who invests in individual securities. He or she may be able to outperform the indeces. However, it may be a full time job to screen and investigate, and then prioritize and make diversified buy decisions, and then monitor the portfolio, and then make sell decisions, for a portfolio of stock and bond securities of say a minimum of 30 to 40 companies. Not to mention newsletter study (and cost). And be sure to toss in a bunch of foreign securities. I'm retired and have available time, but I'd rather play tennis, travel, etc. I can sleep fine if I mostly stick to studying and buying a "good enough", longer term mix of a dozen index funds and ETFs with periodic rebalancing, and otherwise avoid the buy and sell labor of individual companies. I do think that smart small and micro stock investing can beat the Wilshire 5000, and can be accomplished with minimum work in AAII shadow stock investing of a portion of my U.S. stock portfolio. (By the way, even though in theory I'd rather buy individual bonds, I'm mostly out of my depth and I leave that to indexing and long-time experts in active funds.)

Jim of Milwaukee

H Stringer from TX posted over 5 years ago:

I you want to beat the odds use Warren Buffett's techniques. They have been proven to work.

Dave K. from CA posted over 5 years ago:

I resonate with Jon's perspective posted yesterday. I too enjoy tennis and travel more than investment and market research. Consequently, the core of my retirement portfolio is invested in 3 bond mutual funds and about 10 ETF (mostly foreign equity) index funds. I rebalance whenever I add new money or make a charitable gift of an appreciated asset (perhaps twice a year). That way, the time needed for investment management is minimal, and doesn't crowd out other life purposes and interests. For a good article on how to construct a "Gone Fishing" portfolio, check out

James Jennings from VA posted over 5 years ago:

I draw three conclusions from Professor Malkiel's comments:

a) statistics, classical, and all other variations, are nonsense. Every securities price sits rock solid on its mean, and never wavers from it; everyone has instantaneous access to news, immediately and correctly evaluates its effect on prices, is 100% rational and emotionless, and instantaneously acts appropriately;

b) Mr. Malkiel has never looked at a stock chart, and knows absolutely nothing about technical analysis or its purpose and objectives, and

c) I am wasting my money subscribing to AAII.

Charles Salvatori from IL posted over 5 years ago:

there is no such think as investment..Everything is speculation.Buy meaningful chunks of the security you like and sit on it like the hen with eggs and being in the poultry business not all the eggs are fertile.The guys that get truly rich in this game were/are great poker players.They never wait for the hot streak to end.Every hot streak for me had been a sweat as to what to buy,when to buy,sweat the first weeks in and sweat as to when to get out.

Craig Shoemake from MA posted over 2 years ago:

I think it's time someone put Burton Malkiel out of his misery. I don't mean kill him, of course. I'm sure he's a wonderful man. But the message he's spouting is shear nonsense, and has been invalidated by reams of data for decades. The highly touted "efficiency" of the markets is a myth propagated by academics primarily to the benefit of their careers and paper citations. It exists only over the very long haul, and then only in fits and starts. Where, pray tell, was the market's efficiency in 2000 and 2007 before the two biggest bubbles since the 1920s burst? I could go on. If you put your money into an index fund you will get market returns, and you will suffer the market's insanity. Why not buy companies that have been inefficiently and irrationally made cheap by the idiocy of these so-called efficient markets? If you do, you will prosper, like so many other sensible value investors.

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