Thoughts on the Book: A Random Walk Down Wall Street

Random Walk

One in which future steps or directions cannot be predicted on the basis of past history

Around late last year, I sat down with my first ever book on investing/finance: A Random Walk Down Wall Street. I didn't know what to expect then.

At its core, the book says you should just buy index funds and make it the core of your portfolio, manage it passively. Of course, then buy some individual stocks if you want the excitement.

In other topics which stood out the most to me, The Fitness Manual presents exercises such as: You must start to save and start early, build reserves and insure yourself, be competitive with your reserves, make use of tax relief by putting money in retirement plans, understanding your investment objectives with a sleeping scale.

The Life Cycle Guide presents how you can assess your risk based on age, and how the allocations like cash, bonds, stocks and real estate (REITS) can be rebalanced as you age.

Behavioral finance is talked about, and the lessons from history also stood out to me.

In valuation, there are basically 2 techniques: Firm foundation and castles in the air. The techniques of fundamental and technical analysis are debated in the book.

Being a newbie, it was harder to understand the Efficient Market Hypothesis (EMH), Modern Portfolio Theory (MPT), pricing models and the debate on smart beta in the book.

I felt that the writing was written with the layman in mind, with many analogies and statistical examples. The first part of the book teaches you to always remember the past lessons and relate how your own psychology is often your biggest enemy in investing. The middle of the book got a little more complicated with EMH and MPT. The last part of the book finishes it off with how you can conduct the walk with indexing.

As it was the first serious investing book I read, it was generally easy to read and I found myself leaning slightly to some of what the book proposes. Of course, more than just being a teacher, the book also kicked off other habits. I started to read the Invest section of the TheSundayTimes. I started going to Kinokuniya to satisfy the craving for knowledge. I also bought and read The Intelligent Investor by Benjamin Graham which was a far more difficult book to digest.

Knowledge is power

Francis Bacon

Till next time,
K.

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