IntroductionIntroduction

Technical Analysis Fundamental Analysis Random Walk Theory Malkiel’s Views

Technical AnalysisTechnical Analysis

Method of predicting the appropriate time to buy or sell a stock used by those believing in the castle-in-the-air theory.

Study the past movements of common stock and the volume for clues to the direction of future changes.

Fundamental AnalysisFundamental Analysis

Strives to find out what the stock is really worth through the rules of the firm foundation theory:

1. Expected Growth Rate

2. Expected Dividend Payout

3. The Degree of Risk

4. The Level of Market Interest

Random Walk TheoryRandom Walk Theory

States that future steps or directions cannot be predicted on the basis of past actions.

Three versions:1. Weak Form

2. Semi-Strong 3. Strong Form

Weak FormWeak Form

Attacks technical analysis

You cannot predict future stock prices on the basis of past stock prices.

Basketball player example

Semi-Strong and Strong Form Semi-Strong and Strong Form

Attacks fundamental analysis

States all that is known concerning the expected growth of a company and all the information studied by the fundamentalist is already reflected in the stock price.

So What Exactly Is The So What Exactly Is The Random Walk Theory?Random Walk Theory?

The random walk theory in the strongest form states stock market is efficient, therefore it adjusts so quickly and perfectly to new information that amateurs can do just as well as the pros.

Dart throwing

Malkiel’s Views on Malkiel’s Views on ProfessionalsProfessionals

Professionals beat the odds every once in a while but not consistently

Professionals don’t have knowledge of news events since they are unpredictable. Therefore the market is unpredictable.

The knowledge they do posses all the other analysis posses. Evidence shows that professionals can’t beat the market. To beat inflation and the market invest with a buy and hold

strategy of a diversified group of securities.

Malkiel’s Fitness Manual for Malkiel’s Fitness Manual for Random WalkersRandom Walkers

Cover Thyself with ProtectionCover Thyself with Protection

Medical and life insurance to draw on in case of emergency

Know Your Investment Know Your Investment ObjectivesObjectives

What degree of risk you are willing to take?

What investments are most suitable for your tax bracket?

High investment rewards can only be achieved through high risk taking.

What is your sleeping point?

Dodge Uncle Sam Whenever Dodge Uncle Sam Whenever You CanYou Can

401(K) 403 (B) IRA and Keoghs

Be Competitive; Let the Yield Be Competitive; Let the Yield on Your Cash Reserve Keep on Your Cash Reserve Keep

Pace with InflationPace with InflationMoney market fundsMoney market deposit accountsBank certificatesTax-exempt money market funds

Begin Your Walk at Your Begin Your Walk at Your HomeHome

Has proven to be to be a good investment providing generous returns and excellent inflation hedging characteristics.

Attractive Opportunities in Attractive Opportunities in Commercial Real Estate do Commercial Real Estate do

ExistExistReal estate has produced comparable rates

of return to common stocks over the past twenty-five years.

Provides the benefits of diversification.Reduce overall risk of your investment

program.

Tiptoe through the Investment Tiptoe through the Investment fields of Gold and Collectiblesfields of Gold and Collectibles

High returns could be earned in any new speculative craze as long as there are greater fools to be found

Commission Cost Are Not Commission Cost Are Not RandomRandom

Some are cheaper than othersIf you know what you want to buy a

discount broker can get it for you at a much lower commission than the full-service house.

Diversify Your Investment Diversify Your Investment StepsSteps

Common stocks should be a major part of your portfolio, but they should not be your only investment.

A Life-Cycle Guide to A Life-Cycle Guide to InvestingInvesting

The asset mix in your portfolio will be influenced by your age, income, and specific responsibilities in life

The risk you can afford depends on your total financial situation.

How to Go About Buying How to Go About Buying StocksStocks

No-Brainer: Buying the Market

The Deep Thinker: Doing it Yourself

The Substitute Player: Hire a Professional Wall Street Walker

Final ThoughtsFinal Thoughts

There is no easy way to riches.