CONTENTS
INTRODUCTION TO THE FIFTIETH ANNIVERSARY EDITION
1.FIRM FOUNDATIONS AND CASTLES IN THE AIR
Investing as a Way of Life Today
How the Random Walk Is to Be Conducted
3.SPECULATIVE BUBBLES FROM THE SIXTIES INTO THE NINETIES
The New “New Era”: The Growth-Stock/New-Issue Craze
Synergy Generates Energy: The Conglomerate Boom
The Japanese Yen for Land and Stocks
4.THE EXPLOSIVE BUBBLES IN THE EARLY DECADES OF THE 2000s
A Broad-Scale High-Tech Bubble
Fraud Slithers In and Strangles the Market
Should We Have Known the Dangers?
The U.S. Housing Bubble and Crash of the Early 2000s
Does This Mean That Markets Are Inefficient?
The Bubble in Cryptocurrencies
Should the Bitcoin Phenomenon Be Called a Bubble?
What Can Make the Bitcoin Bubble Deflate?
HOW THE PROS PLAY THE BIGGEST GAME IN TOWN
5.TECHNICAL AND FUNDAMENTAL ANALYSIS
Technical versus Fundamental Analysis
The Rationale for the Charting Method
Why Might Charting Fail to Work?
The Technique of Fundamental Analysis
Why Might Fundamental Analysis Fail to Work?
Using Fundamental and Technical Analysis Together
6.TECHNICAL ANALYSIS AND THE RANDOM-WALK THEORY
Holes in Their Shoes and Ambiguity in Their Forecasts
Is There Momentum in the Stock Market?
Just What Exactly Is a Random Walk?
Some More Elaborate Technical Systems
A Gaggle of Other Technical Theories to Help You Lose Money
7.HOW GOOD IS FUNDAMENTAL ANALYSIS? THE EFFICIENT-MARKET HYPOTHESIS
The Views from Wall Street and Academia
Are Security Analysts Fundamentally Clairvoyant?
Why the Crystal Ball Is Clouded
1.The Influence of Random Events
2.The Production of Dubious Reported Earnings through “Creative” Accounting Procedures
3.Errors Made by the Analysts Themselves
4.The Loss of the Best Analysts to the Sales Desk, to Portfolio Management, or to Hedge Funds
5.The Conflicts of Interest between Research and Investment Banking Departments
Do Security Analysts Pick Winners? The Performance of the Mutual Funds
The Semi-Strong and Strong Forms of the Efficient-Market Hypothesis (EMH)
8.A NEW WALKING SHOE: MODERN PORTFOLIO THEORY
Defining Risk: The Dispersion of Returns
Illustration: Expected Return and Variance Measures of Reward and Risk
Documenting Risk: A Long-Run Study
Reducing Risk: Modern Portfolio Theory (MPT)
9.REAPING REWARD BY INCREASING RISK
The Capital-Asset Pricing Model (CAPM)
The Quant Quest for Better Measures of Risk: Arbitrage Pricing Theory
The Fama-French Three-Factor Model
A Multifactor Explanation of Stock Prices
The Irrational Behavior of Individual Investors
Behavioral Finance and Savings
What Are the Lessons for Investors from Behavioral Finance?
3.If You Do Trade: Sell Losers, Not Winners
4.Other Stupid Investor Tricks
Does Behavioral Finance Teach Ways to Beat the Market?
11.NEW METHODS OF PORTFOLIO CONSTRUCTION: SMART BETA, RISK PARITY, AND ESG INVESTING
Four Tasty Flavors: Their Pros and Cons
3.There Is Some Momentum in the Stock Market
4.Low-Beta Stocks May Return as Much as High-Beta Stocks
Dimensional Fund Advisors (DFA)
Research Affiliates Fundamental Index™ (RAFI)
Safe Bonds May Also Provide Opportunities to Employ Risk-Parity Techniques
Risk Parity versus the Traditional 60/40 Portfolio
Bridgewater’s All Weather Fund
A PRACTICAL GUIDE FOR RANDOM WALKERS AND OTHER INVESTORS
12.A FITNESS MANUAL FOR RANDOM WALKERS AND OTHER INVESTORS
Exercise 1: Gather the Necessary Supplies
Exercise 2: Don’t Be Caught Empty-Handed: Cover Yourself with Cash Reserves and Insurance
Exercise 3: Be Competitive—Let the Yield on Your Cash Reserve Keep Pace with Inflation
Money-Market Mutual Funds (Money Funds)
Bank Certificates of Deposit (CDs)
Exercise 4: Learn How to Dodge the Tax Collector
Individual Retirement Accounts
Saving for College: As Easy as 529
Exercise 5: Make Sure the Shoe Fits: Understand Your Investment Objectives
Exercise 6: Begin Your Walk at Your Own Home—Renting Leads to Flabby Investment Muscles
Exercise 7: How to Investigate a Promenade through Bond Country
Zero-Coupon Bonds Can Be Useful to Fund Future Liabilities
No-Load Bond Funds Can Be Appropriate Vehicles for Individual Investors
Tax-Exempt Bonds Are Useful for High-Bracket Investors
Hot TIPS: Inflation-Protected Bonds
U.S. Treasury I Bonds: The Best Alternative for Individuals
Should You Be a Bond-Market Junkie?
Exercise 8: Tiptoe through the Fields of Gold, Collectibles, and Other Investments
Exercise 9: Remember That Investment Costs Are Not Random; Some Are Lower Than Others
Exercise 10: Avoid Sinkholes and Stumbling Blocks: Diversify Your Investment Steps
What Determines the Returns from Stocks and Bonds?
Four Historical Eras of Financial Market Returns
Era III: The Age of Exuberance
Era IV: The Age of Disenchantment
14.A LIFE-CYCLE GUIDE TO INVESTING
Five Asset-Allocation Principles
3.Dollar-Cost Averaging Can Reduce the Risks of Investing in Stocks and Bonds
4.Rebalancing Can Reduce Investment Risk and Possibly Increase Returns
5.Distinguishing between Your Attitude toward and Your Capacity for Risk
Three Guidelines to Tailoring a Life-Cycle Investment Plan
1.Specific Needs Require Dedicated Specific Assets
2.Recognize Your Tolerance for Risk
3.Persistent Saving in Regular Amounts, No Matter How Small, Pays Off
The Life-Cycle Investment Guide
Life-Cycle (Target Date) Funds
Investment Management Once You Have Retired
Inadequate Preparation for Retirement
Investing a Retirement Nest Egg
15.THREE GIANT STEPS DOWN WALL STREET
The No-Brainer Step: Investing in Index Funds
The Index-Fund Solution: A Summary
A Broader Definition of Indexing
A Specific Index-Fund Portfolio
The Do-It-Yourself Step: Potentially Useful Stock-Picking Rules
The Substitute-Player Step: Hiring a Professional Wall Street Walker
Investment Advisers, Standard and Automated
Some Last Reflections on Our Walk
A Random Walker’s Address Book and Reference Guide to Mutual Funds and ETFs