I was at a local function today near where I live. An older gentleman walked in with a copy of Burton G. Malkiel’s A Random Walk Down Wall Street. For a quick refresher, here is the Publishers Weekly review of Malkiel’s book:
The eternal truth of this updated investment classic, originally published in 1973, is simple: you can’t beat the market. Well, technically, you can beat the market, but not profitably, because the transaction costs of your brilliant trading will eat up the extra returns. You can also beat the market by pure luck-but you can’t deliberately beat the market, because you can’t predict future stock prices. You can’t predict them by divining Wall Street’s crowd psychology; or by charting trends in stock prices; or by doing lots of research on companies’ business prospects. You can’t predict them from hemlines (though there’s been “some evidence” for correlation between skirt length and market prices in the past, Malkiel poo-poos future possibilities) or Super Bowl winners (this, he says, makes “no sense”). In fact, according to the efficient market theory, which states that all knowable information about a stock’s value is already reflected in its share price, you can’t predict them at all.
Back to my story. I said to him in a very pleasant way, “There are some problems with your book.” He was surprised I recognized it or knew anything about it. He wanted to chat. He then told me of his background. Taught at Princeton. Graduate School at University of Chicago and a career at the Federal Reserve. Impressive background. We kept talking. I mentioned that my book laid out contradictory information to Malkiel’s long-time bestseller. Guess what happened? Nothing. He did not want any debate. No new information was desired that might upset his long held view and he got away from me fast. However, I did find his address in the phone book and sent him a copy of Trend Following.