Click to Buy
| Click to Buy |
It's unlikely that you'll spot many dog-eared copies of A Random Walk floating amongst the Wall Street set (although bookshelves at home may prove otherwise). After all, a "random walk"--in market terms--suggests that a "blindfolded monkey" would have as much luck selecting a portfolio as a pro. But Burton Malkiel's classic investment book is anything but random. Since stock prices cannot be predicted in the short term, argues Malkiel, individual investors are better off buying and holding onto index funds than meddling with securities or actively managing mutual funds. Not only will a broad range of index funds outperform a professionally managed portfolio in the long run, but investors can avoid expense charges and trading costs, which decrease returns |
There is much academic debate on this topic. The Efficient Market Hypothesis (EMH) states that a stocks price fully reflects all available information. If the stock market is efficient and current prices reflect all information, then trading stocks in an attempt to outperform the market will be a game of chance rather than skill. The "weak" form relates to technical analysis. Most statisticians, and developers of technical analysis Software that I have worked with state that technical analysis doesn't work even when back tested. In my own personal experience I certainly see market anomalies all the time. Peter Lynch, Warren Buffet have certainly been able to outperform the market. I believe the EMH to be false. Take a look at the indicators on clearstation. For many stocks you will see clearly profitable trades, had you bought on a buy signal and sold on a sell signal.