This book is written by Burton G. Malkiel, who is a professor of economics at Princeton University. He has also been the director of Vanguard Group. It will be no surprise that the philosophy of Mr. Malkiel conforms to Mr. Bogle, the founder of Vanguard Group. In the book, he said he is a lifelong investor and have made lots of money from the stock market.
I just started to learn to invest since last year. The husband of one friend of my wife is a careful person (I can even tell this from his son). He only puts his money in CD. Under the low-interest rate now, 100K will be around 121899.44 after 10 years with current best GIC rate 2.0%. Although making 20K without risk in 10 years sounds like not a bad deal, you need to remember that the average inflation rate is around 3%, which means 100K should worth 134391.64 at least 10 years later. Any investment cannot beat inflation is not a good investment.
The random walk in this book means that one in which future steps or directions cannot be predicted on the basis of past history. In investing paradigm, there are two widely used methods adopted by stock traders: fundamental value investing and technical analysis.
Value analysis can be understood as the stock should only be bought at a bargain or reasonable price. It makes more sense because we would feel ripped-off if we pay more than actual value in our daily purchase. If you can buy something when it's 70% on-sale, why should I be the fool to pay its full price?
On the contrary, technical analysis assumes that A thing is worth only what someone else will pay for it. If someone is willing to pay a baseball card for 1000 CAD, would you care to buy it with 500 CAD from eBay?
In following chapters, Mr. Malkiel provides evidence and analysis to show that speculation in the stock market is effortless and not worthwhile. Sometimes, laziness is actually the best tactics for smart investors.
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