A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

by Burton G. Malkiel

Fundamental analysts take the opposite tack, believing that the market is 90 percent logical and only 10 percent psychological. Caring little about the particular pattern of past price movements, fundamentalists seek to determine a stock’s proper value. Value in this case is related to a company’s assets, its expected growth rate of earnings and dividends, interest rates, and risk. By studying these factors, the fundamentalist arrives at an estimate of a security’s intrinsic value or firm foundation of value. If this is above the market price, then the investor is advised to buy. Fundamentalists believe that eventually the market will reflect the security’s real worth. Perhaps 90 percent of the Wall Street security analysts consider themselves fundamentalists.