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

by Burton G. Malkiel

An investor with $10,000 at the start of 1969 who invested in a Standard & Poor’s 500-Stock Index Fund would have had a portfolio worth $736,196 by June 2014, assuming that all dividends were reinvested.

A professor may inherit lots of money, marry lots of money, and spend lots of money, but he or she is never, never supposed to earn lots of money; it’s unacademic.

Res tantum valet quantum vendi potest. (A thing is worth only what someone else will pay for it.)

The point is that it is highly unlikely you can beat the market. It is so rare that it’s like looking for a needle in a haystack. A strategy far more likely to be optimal is to buy the haystack itself: that is, buy an index fund—a fund that simply buys and holds all the stocks in a broad stock-market index.

The correct holding period for the stock market is forever.

A professor who espouses the EMH is walking along the street with a graduate student. The student spots a $100 bill lying on the ground and stoops to pick it up. “Don’t bother to try to pick it up,” says the professor. “If it was really a $100 bill, it wouldn’t be there.”

It is critically important to start saving now. Every year you put off investing makes your ultimate retirement goals more difficult to achieve. Trust in time rather than in timing.

J. P. Morgan once had a friend who was so worried about his stock holdings that he could not sleep at night. The friend asked, “What should I do about my stocks?” Morgan replied, “Sell down to the sleeping point.” He wasn’t kidding. Every investor must decide the trade-off he or she is willing to make between eating well and sleeping well. The decision is up to you. High investment rewards can be achieved only at the cost of substantial risk-taking. That has been one of the fundamental lessons of this book. So what’s your sleeping point?

She was broke at the end of the Civil War, but she still had her beloved plantation, Tara. A good house on good land keeps its value no matter what happens to money. As long as the world’s population continues to grow, the demand for real estate will be among the most dependable inflation hedges available.

Remember the sad lesson learned by many Enron employees who lost not only their jobs but all their savings in Enron stock when the company went under. Never take on the same risks in your portfolio that attach to your major source of income.