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Book Review: Random Walk Down Wall Street
This paper entails a book review report for a popular financial planning book which is used by individuals and investment planners in the financial planning decisions that they make in relation to the investment of their wealth. The book which will be reviewed in this report is titled: A Random Walk down Wall Street,” and it authored by a financial planner and highly revered expert who has been in the business of financial planning for more than 40 years. His name Burton Malkiel and he hails from the United States.
The overall popularity and relevance of this book to the financial planning and investment strategies that are used by contemporary financial experts is unquestionable and undeniable. The book was first authored in 1973 and since then, 11 editions have been released with the most recent edition having been published in the Year 2014. The book fundamentally addresses the processes and strategies that are used by fund managers and other investment professionals in the purchase and sale of various securities in the capital markets of the United Sates. These securities include tradable instruments such as stocks, bonds and derivatives among other similar investment instruments.
The book has been chosen for the purpose of this review report because it fundamentally interrogates and critiques the standard investment theory and approaches that are used by the said investment managers and financial planners in their investment decisions. The book challenges what it refers to as conventional investment wisdom and advocates for a paradigm shift to investment strategies that are more suitable and relevant to approaches based on historical data and past financial performance of the said standard investment theories (Malkiel 78).
In his book, A Random Walk Down Wall Street, Burton Malkiel targets a wide variety of financial industry players that include fund managers, investment planners, financial planners, high net worth individuals, investment attorneys, institutional investors and stock market speculators among a host of many other targeted audiences. The commonality between these targeted audiences is the fact that are involved either directly or indirectly in the process of financial planning and investment of their portfolios, either for their own accounts or as contracted agents by their clients.
Although the focus of the book is on the ideas, theories and approaches that are used in the investment of stocks and bonds in the capital markets of the United States, Burton has structured the book in such a way that it reaches a wider audience beyond the confines of the United States capital markets and has only used the data and information obtained from these markets for illustration and demonstration purposes for his targeted audience.
In this regard, Burton has advanced theories and criticisms against the standard approaches of investment and financial planning to an audience that stretches towards other financial markets and jurisdictions outside the United States. His argument in targeting such a wide audience is that the fundamental tenets and behavior of stock markets is the same in all geographic localities that these markets are found. In his argument, the same forces that impact and affect the movement of share prices for example in the United States are the same forces that will play out in other markets such as London or Tokyo, and thus, conventional investment and financial planning knowledge remain the same across these markets.
One of the key aspects of the characteristics of the targeted audience that Burton has focused on in his book is the fact that the book is addressed at financial planners, investors and individuals of varying investment and financial planning ages and experiences. This notion implies that Burton`s seeks to reach out to other novice as well as professional financial planners by advancing theories and approaches that they all can relate to and apply in their future financial planning and investment activities.
Burton has also targeted academician and scholars who wish to pursue advanced studies in the field of financial planning and investment from a professional and expert-based perspective. This conclusion is based on his citation of various theories and studies that were previously advanced by other theorists and scholars in the field of financial planning. The studies include the theory of the Efficient Market Hypothesis, the Fama and French studies as well as the review of different financial decision making approaches.
In this book, these arguments have been clearly articulated through the provision of verifiable historical data based on the past performance of the stock market in the United States than in other geographic jurisdictions. This book is also targeted at individual curious readers who wish to gain a few critical insights into the working of the financial planning and investment process from a general perspective (Malkiel 45).
How effective is the Book on the Targeted Audience
As previously mentioned Burton has targeted four main categories of audiences in the content and overall proposition of his book. The first targeted audience category is the financial planners and investment professional who are involved in this industry on a day-to-day basis. The content of this book alludes to the fact that Burton has carefully considered the professional experience and investment knowledge of these individuals, and he has subsequently packaged a body of knowledge which is relevant to them.
The second category of audiences that Burton has focused on in his book is the individual investors who are novice in the financial planning and investment processes, and who wish to deepen their understanding of this process. Burton has also sought to address the specific informational needs and requirements of this group of targeted readers by focusing on ideas and propositions that are less complex.
The third category of targeted audience covered by this book is financial scholars and theorists whose knowledge base and understanding capacity is of an advanced level. Burton has also targeted this group of readers with the objective of challenging their conventional understanding and knowledge of investment wisdom by introducing new ideas and concepts that this audience may previously have not come across.
This targeted audience has been captured through Burton`s interrogation and dissection of conventional financial planning theories and concepts and the subsequent introduction of new dimensions with the objective of engaging this advanced group of readers in an intellectual debate. The feasibility of Burton`s ideas in the book lie squarely on the historical evidence that he has provide in support of his ideas, thereby giving his arguments significant weight.
Lastly, Burton has also targeted a small category of audiences that are new to the financial planning and investment field and possess limited or no knowledge whatsoever of both financial planning as well as the business related fields as a whole. This targeted audience refers to individuals who wish to pursue financial literacy information for a general purpose and not necessarily with the objective of gaining advanced skills sets in the field of financial planning and investment.
In this regard, Burton has simplified the ideas and propositions that are contained in his book, and he has condensed this information and packaged it in a manner that appeals to the novice nature of these individuals. As previously mentioned, this simplified financial information is contained in the earlier chapters of the book that are primarily introductory in nature and thereby suitable for readers who do not possess advanced knowledge and skills sets in the area of financial planning and investment (Malkiel 99).
How Does the Material Contained In the Book Compare To Previous Knowledge on Financial Planning
In his book, Burton Makiel has focused on five main ideas that form the basis of his argument and the distinction between his overall proposition and existing literature on financial planning. The first idea contained in the book is the notion that unlike convention financial theory, technical analysis is not an ideal approach towards in the creation and formulation of strategies that are to be used in financial planning. This proposition significantly deviates from conventional financial planning wisdom which strongly advocates for technical analysis as an effective tool in the formulation of the said strategies.
Secondly, Burton examines the concept of fundamental analysis and how it has been applied in many financial planning contexts over the decades as a secondary tool. Burton appreciates that fundamental analysis can be used as a more ideal approach to investment and planning when compared to technical analysis. However, Burton argues in the book that fundamental analysis when applied in isolation cannot be used to produce superior risk-adjusted returns over a sustained period of time. Again this argument significantly deviates from the assertions and propositions of prevailing financial wisdom. Burton brings to the fore the idea that fundamental analysis only works in the absence of disruptive forces and economic shocks that cannot be anticipated by the financial planner on an on-going basis.
Thirdly, Burton introduces the concept of behavioral finance and he strongly advocates for this concept as the fundamental driver of stock and market price activity in many geographic jurisdictions and industry sector across the globe. Although conventional financial planning wisdom recognizes and appreciates the role played by behavioral finance in influencing market price activity, Burton`s arguments significantly deviate from this proposition based on the fact that he attributes all price movement to this concept unlike in conventional financial planning theory where stock price movement is perceived as a component of demand and supply balance fluctuations over time.
Fourthly, Burton`s book addresses the Efficient Market Theory from the perspective of what conventional financial knowledge says about the theory, and how it is used to determine the movement of stock and market prices in the United States as well as in other jurisdictions across the world. According to conventional theory, the efficient market hypothesis theory enables markets to operate at equilibrium if all the pertinent information relating to the securities is available. According to Burton`s theory however, the efficient market theory does not drive stock markets in isolation, but rather the existence of patterns that are linked to this theory can be attributed to data mining biases as opposed to factual theoretical tendencies that may be in play in these markets.
Finally, Burton`s theories that significantly deviate from conventional financial planning knowledge are revealed in his book through the advice that he gives to individuals and institutions that wish to plan their finances in the near future. According to Burton, financial planning can only succeed if it is undertaken on a long term perspective with time frames exceeding 10 years being preferred. Burton further argues that investors cannot effectively profit from the capital markets and their portfolios if they continually focus on short term reversals of prevailing market trends that may currently be in paly. This argument also significantly deviates from the theories advanced by conventional financial planning quarters that emphasize the importance of short term market trends in the overall success of investment plans and portfolios (Malkiel 235).
Would I Recommend This Book?
Burton Makiel`s financial planning and investment book provides pertinent information and ideologies to a varied categories of audiences who he targets as the primary consumers of his proposition. A significant component of the knowledge and ideas that are contained in this book substantially depart from the basic theories and tenets of financial planning and investment knowledge. The decision as to whether this book should be recommended to the targeted audience squarely lies on the specific category of the audience that Burton has accordingly targeted in his book.
In regards to the first audience category who are the industry professional and financial planners that deal with investment matters on a day-to-day basis, this book is highly recommended for them. This recommendation is based on the realization that the book advances new financial planning and investment knowledge which is founded on facts that are backed up by proven historical data. This strong evidence in this regard gives credibility to the theories that Burton is advancing in his book, although they depart from conventional financial knowledge. Therefore, financial planners should read this book with view of trying out some of the ideas that it contains and understanding whether they can be sustainably applied in the investment and financial planning field going forward.
The second category of audiences that this book is targeted at comprises of individuals who seek information for their own financial planning and investment consumption purposes. These are individuals who have opted to pursue the financial planning objective at a personal level without engaging the services of professional planners and investors to manage their wealth. This category of audiences is relatively novice and inexperienced in nature, and their knowledge and understanding of financial matters is significantly limited. In this regard, this book is not recommended for this specific targeted audience due to its departure from conventional financial planning wisdom, though the book supports its ideas with verifiable facts and data (Malkiel 120).
The third category of readers that this book targets is scholar and academician who have an advanced understanding of financial planning and investment matters especially from a theoretical perspective. These individuals are responsible for the formulation of various financial planning theories through the research which they continually conduct, and their ability to interrogate new theoretical advances in relation to financial planning from an objective and realistic angle. This book is highly recommended for this specific target audience because the book fundamentally invites these scholars to an academic debate on the viability of the theories and assertions that it contains. In this regard, this category would find its theories significantly relevant to the contemporary financial planning and investment field.
Lastly, this book is also targeted at non-financial related readers and individuals who have no prior background of financial planning or business related studies for that matter. These are individual who pursue financial planning and investment knowledge purely on curiosity basis and they have no solid intentions of pursuing this line of work on whether a professional or advanced basis. This book is not recommended for this group of individuals because it materially deviates from the common financial planning and investment knowledge which is currently available. Readers would therefore, find the contents of this book rather confusing when compared to the assertions and ideas of conventional financial knowledge (Malkiel 234).
This report has comprehensively reviewed the contents, fundamental ideas and overall proposition of the book titled a Random Walk down Wall Street which was first authored by Burton Makiel in 1973. In this book report, a critical understanding of the main ideas that have been floated in this book has been reviewed, and its relevance to the targeted audience subsequently analyzed.
This book review has also compared the knowledge, ideas and theories that have been advanced in this book with the contemporary wisdom and theories that are contained in other similar publications in relation to their role in the process of financial planning and investment. From this comparison, it is evident that this book has brought to the fore ideas and perceptions that have previously not been discovered, or which have been ignored by financial planners for extended durations of time, up until the publication of the book.
This review report has also scrutinized the suitability of this book as an investment planning tool from the perspective of its pros and cons. One of the overriding advantages of this book is that it advances ideas and theories that are backed up by historical data which has provided the strong evidence required to back up the book`s claims. On the downside, this book is largely technical in nature and not suitable for layman financial planners or novices who are new to the financial planning field. In closing, the analysis contained in this book will provide a critical summary of its contents for financial planners and individuals who wish to use it in their financial investment and planning engagements going forward.
Malkiel, Burton. A Random Walk Down Wall Street: The Time-Tested Strategy for Successful
Investing (Tenth Edition). New York: W. W. Norton, 2011. Print.
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