The hypothesis set forth in this book is that the stock market is fairly efficient and trying to “beat the odds” by taking advantage of a weakness is pointless. Burton G. Malkiel has prepared a very readable, even entertaining lesson on investment fundamentals including investing strategies and analytical tools.
For example, in Chapter 5 the author contrasts fundamental analysis with technical analysis when trying to determine a stock’s value. Fundamental analysts strive to determine the proper value of a stock by looking at growth, dividends paid, risk and interest rates and believe that at some point the market will reflect the real value of the stock. Technical analysts make charts and study the past in order to predict the future performance of a particular stock. The author appears to favor the fundamental analysis approach. Therefore, the following discussion will center on fundamental analysis.
Unlike technicians who just look for the record of stock prices, a fundamental analyst is looking for the actual stock price. They ignore the feelings of the crowd and draw a sharp distinction between the stock’s price today and the true value.
Fundamental analysts use four determinants to find the true value of the stock:
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He concludes the book by identifying specific methods of investing. Malkiel seems to like the modern day Index Funds that purchase stocks in proportion to their weight in the stock index. He also gives tips for those who want to perform their own analysis and make investment decisions personally. He recommends purchasing stock in companies that appear able to maintain above average growth for at least five years, looking forstocks that have a P/E ratio that is low in relation to their growth prospects to buy stocks that will