https://abaj.ai/author/burton-g.-malkiel/Recent content in Burton G. Malkiel on Aayush Bajaj's Augmenting InfrastructureHugoen© 2026 Aayush BajajWed, 29 Apr 2026 03:23:00 +1000https://abaj.ai/words/library/books/a-random-walk-down-wall-street/Fri, 17 Apr 2026 00:00:00 +1100https://abaj.ai/words/library/books/a-random-walk-down-wall-street/<h2 id="notes">Notes<a href="#notes" class="post-heading__anchor" aria-hidden="true">#</a> </h2> <h2 id="highlights">Highlights<a href="#highlights" class="post-heading__anchor" aria-hidden="true">#</a> </h2> <ol> <li>[y] “smart beta”</li> <li>[y] modern portfolio theory, whose insights will enable you to reduce risk while possibly earning a higher return</li> <li>[o] investors can increase their returns by assuming a certain kind of risk</li> <li>[i] psychology, not rationality, rules the market, and that there is no such thing as a random walk</li> <li>[z] they should constitute the core of all portfolios</li> <li>[y] The efficient-market hypothesis explains why the random walk is possible.</li> <li>[i] Because of the actions of the pros, the prices of individual stocks quickly reflect all the news that is available.</li> <li>[b] Samuel Butler</li> <li>[z] the method of beating the market, they say, is not to exercise superior clairvoyance but rather to assume greater risk</li> <li>[y] The dividend of the company may be cut</li> <li>[s] Thus, financial risk has generally been defined as the variance or standard deviation of returns.</li> <li>[j] Although the pattern of historical returns from individual securities has not usually been symmetric, the returns from well-diversified portfolios of stocks are at least roughly symmetric.</li> <li>[v] Thus, in two-thirds of the months the returns from this portfolio were between +5½ percent and –3½ percent, and 95 percent of the returns were between 10 percent and –8 percent.</li> <li>[y] October 1987 is the most dramatic change in stock prices during a brief period since the 1930s</li> <li>[y] there are ways in which investors can reduce risk.</li> <li>[s] What Markowitz discovered was that portfolios of risky (volatile) stocks might be put together in such a way that the portfolio as a whole could be less risky than the individual stocks in</li> <li>[s] quadratic programming</li> <li>[o] although both companies were risky (returns were variable from year to year), the companies were affected differently by weather conditions</li> <li>[j] negative covariance</li> <li>[z] most investors will realize that when the market gets clobbered, just about all stocks go down</li> <li>[t] anything less than perfect positive correlation can potentially reduce risk</li> <li>[y] can there be too much of a good thing? <em>diversification: yes</em></li> <li>[v] fifty equal-sized and well-diversified U.S. stocks</li> <li>[v] total risk is reduced by over 60 percent</li> <li>[y] increases in the price of oil and raw materials have a negative effect on Europe, Japan, and even the United States,</li> <li>[y] oil price increases have a very positive effect on Indonesia and oil-producing countries in the Middle East.</li> <li>[y] international diversified portfolio tends to be less risky than the one drawn purely from U.S. stocks</li> <li>[y] EAFE (developed foreign country</li> <li>[y] The paradoxical result of this analysis is that overall portfolio risk is reduced by the addition of a small amount of riskier foreign securities.</li> </ol>