A Random Walk Down Wall Street: The Best Investment Guide That Money Can Buy

by Burton G. Malkiel

Two fundamental tenets make up the efficient market hypothesis. EMH first asserts that public information gets reflected in stock prices without delay. Information that should beneficially (or adversely) affect the future price of any financial instrument will be reflected in the asset’s price today. If a pharmaceutical company now selling at $20 per share receives approval for a new drug that will give the company a value of $40 per share tomorrow, the stock price will move to $40 right away, not slowly over time.

In an efficient market, there are no possibilities for earning extraordinary gains without taking on extraordinary risks.

Last, and certainly not least, I have been a lifelong investor and successful participant in the market. How successful I will not say, for it is a peculiarity of the academic world that a professor is not supposed to make money. 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.

Hindsight promotes overconfidence and fosters the illusion that the world is far more predictable than it really is. The people who sell worthless financial advice may even believe that it is good advice.

Any investment that has become a topic of widespread conversation is likely to be hazardous to your wealth.