The book “A Random Walk down Wall Street” written by Burton Gordon Malkiel is a

economist mainly stresses the stock markets and acts as guide or advice while taking a financial
decision. The book completely stresses the points like where to invest how to plan the retirement,
insurances, and mortgage loans and how to deal with the gold and diamonds and finally how to
meet the financial goals. The author described about the random walk about the stock market
because the future trends of the stock prices cannot be predicted based on the past trends. The
stock market is also compared with blindfolded monkey throwing darts at the newspaper. This
means one cannot predict the stock prices and how complexity it is. The author also shared the
details about the three phases of his life as professional career, as a economist and as a lifelong
investor. Each chapter describes important aspects related to stock markets starting from basic to
understand easy and to communicate to the readers.

In chapter 1, “Firm Foundation and Castles in the Air”, the author discussed two
fundamental theories regarding investment. One is Firm foundation where the theory says that
each and every investment is selected wisely using the past and future trends. This is simply
based on the earnings of series of profits in the future. On the other hand the Castles in the Air
technique based on the other people or investors. If more numbers are investing on a same stock
market, then the people also follows the same. These two techniques are followed by most of the
investors while investing and these are the basics which are easy to understood the phenomenon
of the stock market.

Coming to the chapter 2, The Madness of Crowds, the title itself describes what is
happening in the stock market, those are financial crazes which are happening in the history. The
historians generate work for themselves by reinterpreting the past. Some are reexamined the
evidence of financial bubbles and have argued that considerable rationality in pricing that may
exist after all. The example suggested here about the tulip bulb pricing in seventeenth century
Holland was far more rational than is commonly believed. Other examples are about the south
sea bubble and Wall Street crash of 1929 which makes sudden rise in the market where they are
overvalued, later they come to normal. This is simply at the starting, the prices of the product
raised peak and become normal at the end of the 2 or 3 years. This type of situation is described
as Madness of crowds. As people started valuing them, they rose to extent of belief.

In chapter 3, “Stock valuation from the Sixties through Nineties”, the author described
several examples to explain the craziness and how it vary from sixties to nineties. The example is
like overvaluation of the food stocks in the 80’s and also in 70’s about the Roaring Eighties and
Nifty Fifty where people speculating in blue chips and by the end it became normal. These series
of events described as crazy and an eye opening about the stock market. The same thing repeated
with the Chinese Romance with the Lycoris Plant in 1980’s. Actually this plant is available to
the Royal families later it became sign of distinction to the prominent families.

In chapter 4, “The firm Foundation theory of stock” is explained. One should know the
valuation of the stock. In this chapter the author stressed about the self assessment of the stocks
by an individual. The terms like expected growth, expected dividend payout, the degree of risk,
the level of market interest rates should understand on own. The growth rate means the interest
rate at which the dividends will payout at the end. The expected dividend payout is the amount
received at each payout depending on the growth rate. The degree of risk is the term used to
describe the safety or investing. The less the risk, the more the quality of the stock which is also
preferred by most of the investors.

In the chapter 5, “Technical and Fundamental Analysis” the author discussed analysis
procedures while selecting a stock. Technical analysis is simply mathematics, by observing the
past trends, future will be predicted with the help of the bar charts, trend lines etc. This technique
is simply to analyze the company’s reputation in terms of profits. On the other hand, the
fundamental analysis is the technique which is uses the fundamental facilities and amenities,
likewise the improvements in the technology, health, finance etc. These two techniques are
explained with several lively examples in the book by the author. One can simply realize about
the trends and can buy shares and sell shares using these techniques. If some trends observed
about to downfall in the shares, then investors starts selling them to the others at that rate or
cheaper.
In Chapter 6, “Technical Analysis and the Random-Walk Theory” is discussed. The
chartists steps are mostly influenced by earnings, dividends, risk, gloom of high interest rates and
they start studying the price movements of stocks. They switch into the stronger stocks and left
behind the poor stocks. In this the author compared the stock market to the average length of a
hemline in women’s fashion and finds a correlation. So, most of the technical analysis comes
true. Analyzing charts will reduce the border way of thinking and limited the stock market plans.
This technical analysis makes profits for the users and produce better returns than the market
when they judged in a effective way.

In Chapter 7, “How good is Fundamental analysis” is explained in detail. Author believes

the technique of fundamental analysis because it is based on foundational logic which has an
option to consider long range of data. On the other hand, the author suggests that the
fundamental analysis to be deeply analyze in order to trust. Sometimes the fundamental analysis
also may not apply. Like environmental and climatic factors like earthquakes, and human factors
like terrorism which destroy government or stock markets to destabilize the government. So,
only the professional analysts may have a grip on individual investors. But, the fundamental
analysis is easy to grab from the available data from the charts and from other sources of
investments.

In Chapter 8, “A new Walking Shoe: Modern Portfolio Theory is discussed”. This theory
is all about the people diverse selection of investments which maximize the profits and
minimizes the risks. Many of them follow firm foundation and castle in the air theories. But the
experts believe that these theories are not always yield extraordinary profits. So, relay on these
theories is not always good according to the financial experts. To calculate the risk, some of the
examples are provided in this chapter. Although the theories are followed, there might be a some
risk factor. In order to reduce the risk, the modern portfolio theory is established. In this case, the
author compares the portfolio theory with his wife like risk averse. The portfolios to give the
least risk possible, consistent with the return they seek.
 In Chapter 9, “Reaping Reward by Increasing Risk” is discussed. This implies knowing
about the risk and its rewards of the stock market. In combination with the academic knowledge
and also random walk which means by taking decision depending on the previous trends, both
are risk techniques to reap greater riches. So, in this chapter the creation of analytical tools to
measure risk and knowledge to reap greater rewards are discussed. One of the techniques to
avoid risk is diversification which is discussed in the last chapter, but it does not avoid all the
risks. A model developed by three academics regarding the diversification technique which
avoid risks and cannot awarded with a noble prize in the year 1990 which the model named as
capital asset pricing model (CAPM). In this model it simply explains about if one is expected
higher long run rate of return one should increase the risk level which cannot be diversified
away. The risk measure factor namely beta is introduced. The beta is the term used to compare
the movements of an individual stock and the market as a whole. For example if the beta is 2,
then it represents the individual stock swings twice with the movements in the stock market. The
beta model is followed by several investors because of its simplicity. The terms like systematic
risk and unsystematic risks are also discussed briefly in this chapter. The arbitrage pricing theory
(APT) is developed by Ross in order to replace the beta which is an effective quantitative
measure of risk. This theory is developed based on if the beta term is not works or badly
damaged. APT has wide influence both in the academic community and in the practical world of
the portfolio management. And this model has its own warts. Finally the author also discussed
the failure of the beta factor which cannot work or due poor relationship between the rate of
return and beta. So, no single measure can capture adequately the systematic risk influences.
From this chapter, the two main theory CAPM and APT are discussed and their applicability in
the stock and the strengths and weakness of them in the stock situation. Author explains that
which theory is applicable at what situation and their consideration in the stock which are
important to reduce the risk factors.

In Chapter 10, the author expressed with the title “The Assault on the Random Walk
Theory: Is the Market Predictable after All?” If the decision is taken by means of the Random
walk theory, the ultimate output may be profit or loss. All the times profit may not be achieved.
Several companies how followed this theory and finally down to losses, the author explained
here. The author quoted examples like heavy losses in the Dow Jones Corporations in a month.
So, in view of these lively examples, behavioral finance concept came into existence. In this
concept, the psychological conditions taken into account for selecting a stock. The behavioral or
psychological conditions involves the reactions of a individual, the level of faith, the desire
towards the stock etc comes into account. The behavioral characteristics plays very important
role in the 90’s on the stock markets. The author quoted here two to three examples. About a
flower which can be used by only royal family. It is sold like nothing in the china markets after
the availability in the markets. Later they became normal. In this way the behavioral patterns
effects the statistical patterns. The behavioral patterns proved to be more efficient than the
random walk phenomenon. As the random walk is simply following the past trends and moving
towards future, the effectiveness and determination helps to move towards the behavioral theory.
 In Chapter 11, “A Fitness Manual for Random Walkers” is presented. The author offers
advice to the random walkers in this chapter even they don’t believe the security markets. The
life cycle investment guide in which the stage of life plays important role in determining the mix
of investments to meet the financial goals is also explained. Some of the exercises cover theyself
with protection, Know your investment objectives, Dodge uncle sam whenever you can, Be
competitive, let the yield on your cash reserve keep pace with inflation, Investigate a promenade
through bond country, Begin your walk at your own home; renting leads to flabby investment
muscles, Beef up with real estate investment, Tiptoe through the investment fields of gold and
collectibles, Remember that commission costs are not random; some are cheaper than others,
diversify your investment steps are discussed. These exercises help to understand the basics of
the investment from small scale to large scale stocks and their implementation. This chapter is
mainly an advice to the random walkers.

In Chapter 12, “Handicapping the Financial Race: A Primer in Understanding and

Projecting Returns from Stocks and Bonds” is discussed. How to become a financial bookie and
able to understand the odds of constructing a winning portfolio is explained clearly. The factors
influenced for the returns from the stocks and bonds like time of purchase and future growth rate
of the dividends are highlighted. The calculation of the long run returns from bonds and stocks
are shown in this chapter. The three eras with three broad swings in stock market returns after
World War II is discussed briefly. The three eras namely The Age of Comfort, The Age of
Angst, The Age of Exuberance with some examples from the industries is briefly discussed.

In chapter 13, “A Life-Cycle Guide to Investing”, is explained by the author. In this

chapter, the life or the age of an individual effects the investment levels. The elder age people
thinking levels are different from the older age. The plans become narrow with the increase in
the age of a person. The older aged people have less chances of investing in a stock. The elder
people ready to step or can invest into stock markets. This can be applied to the long term and
short term goals. If someone is expecting larger profits the wait should be more as the pay at the
end should be expected sometime after a decade or two decades. Simple example for this is a
investment in a retirement fund. If one expecting profits in a short time, the intensity of the
profits are less. The author also explains the concept of risk and reward. One should not get
rewarded without taking a risk. If the investment is small, the profits are low and similarly vice
versa. A life cycle guide for investment is a very important term of an individual. Simply, the
options vary with the age of a person or the investment period.

In Chapter 14, “Three Giant Steps Down Wall Street” is discussed. In this chapter, the
rules for buying stocks and recommendations for the instruments are clearly explained. The
explained in two cases, the first case refers to the shares in index funds. In case of index fund,
number of stocks becomes a large stock. In this case the individual travels with the market
prices. The other case is different where an individual can select his stock with the index funds
with different rate of returns. Simply in this chapter, one can take three steps in his investment,
one is do or nothing, the other is shares in index funds and the other is investing depending on
the rate of returns.

Summary: The book “A random walk down wall street” is written by Burton G. Malkiel,
Professor of Economics at Princeton University, NEW YORK, London and this is the seventh
edition of the book with some updates related to the recent developments in the technology and
with the smart examples of the stock are included in addition to the old addition. The printing of
this book is started in the 1970’s and this edition is 1999. The each edition is refined with the
new examples. The author takes the help of his wife in editing this book and also he mentioned
about her as an example in some of the risks and rewards theory. The complete journey of the
author with the investment and knowledge in the economics are included with additional number
of research works carried out by the different authors around the world helps to easy the anlalysis
of the theories. The title “A random walk down wall street” itself is clear that what is happening
in the stock market. At first the term random is not understandable but at the end it is better
suited for the situation of the stock market. The author clearly mentioned basics of the
investment and stock market and how the past trends and future steps impact the market and the
personal experience of the author as a young professional, economist and as an investor in the
life. Some of the theories in the 70’s 80’s and 90’ after the world war and their advantages and
disadvantages where to apply these theories and the steps to be taken in the random walk are
discussed. One who started investing and in an early stage can easily cope up with this book to
develop and understand the easy way of investing and getting the good returns. The risk levels
and the rewards is the most appropriate title that is discussed in this book which says that the
more the risk one involved in the stock market the more will be the reward. This condition is
applying only when an individual analyzed the behavioral trends and also random walk steps and
taken decisions on a stock with high rate of returns and dividends. The simply factors like beta
which helps to know the individual stock behavior with the whole stock is easily explained. The
craziness of the people about the products in the 1980’s which make the drastic increase in the
some of the products like bubbles and later come to normal rates is explained. This book makes
the short investors, long term investors to analyze the behavior of the market and to take
individual decisions in the stock. The influence of the behavior on the markets also gives an
impact on the stock, the life cycle cost which is explained in terms of the man with 30 and 60
years old and their goals and investments. The phenomenon in the startup investors and long run
investors is the same happened. So, the book is very interesting to understand and the real time
examples are crucial to help to gain the knowledge of stock markets and their behavior. Several
sectors like health, education, industries role in the stocks are also included. The basic levels of
the investment techniques and high levels of investment theory and their warts and their usage in
the current stocks is explained briefly. In this way this book is a critical decision making advice
in investing something in a stock market. The individual investment patterns can be easily
assessed with the age, rate of return, growth rate. The examples of the markets, developments,
emerging technologies, made interesting in reading.