Burton Malkiel

A Random Walk Down Wall Street

1. IDEA 1

   Prices move unpredictably

   Malkiel argues that short-term movements in share prices are largely unpredictable, like a random walk. Because markets quickly absorb new information, he believes it is very hard to consistently beat the market.

2. IDEA 2

   Two theories explain prices

   Malkiel describes the firm-foundation theory, which values assets by their real worth, and the castle-in-the-air theory, which focuses on what others will pay. Both influence markets. Understanding both helps explain why prices sometimes drift far from real worth.

3. IDEA 3

   Bubbles repeat

   Malkiel describes speculative bubbles, from tulip mania to internet stocks. People repeatedly pay prices far above value. In each case, excitement spread, prices rose far beyond what the assets could justify, and the fall that followed hurt many people.

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