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

by Burton G. Malkiel

Montier, global strategist at Société Générale, writing in the Financial Times, declared that the theory suggesting that markets are efficient was “utter garbage” and should be consigned to the dust bin. Some supporters of “smart beta” portfolios believe that markets are inefficient and see their portfolio construction methods as a way of protecting investors from bubble-priced stocks. Moreover, they argue that smarter portfolios can be formed by a reliance on academic findings that there are many statistically significant predictable patterns in the stock market. We have seen, however, that these patterns are not dependable in every period, and that some of the patterns based on fundamental valuation measures of individual stocks may simply reflect a better proxy for measuring risk. In addition, many of these patterns could self-destruct in the future, as many of them have already done.