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A Random Walk Down Wall Street – 阅读整理【一】






Preface

1. Investors would be far better off buying and holding an index fund than attempting to buy and sell individual securities or actively managed mutual funds.
2. The basis thesis of the book: the market prices stocks so efficiently that a blindfolded chimpanzee throwing darts at the Wall Street Journal can select a portfolio that performs as well as those managed by the experts.
3. Through the past 30 years, more than two-thirds of professional portfolio managers have been outperformed by the unmanaged S&P 500 Index.
4. One’s capacity for risk-bearing depends importantly upon ones’ age and ability to earn income from non-investment sources. It is also the case that the risk involved in most investments decreases with the length of time the investment can be held.Thus, optimal investment strategies must be age-related.

What is a random walk?

A random walk is one in which future steps or directions cannot be predicted on the
basis of past actions. When the term is applied to the stock market, it means that short-run changes in stock prices cannot be predicted. Investment advisory services, earnings predictions, and complicated chart patterns are useless.

Investing as a way of life today

I view investing as a method of purchasing assets to gain profit in the form of reasonably predictable income (dividends, interest, or rentals) and/or appreciation over the long term. It is the definition of the time period for the investment return and the predictability of the returns that often distinguish an investment from a speculation.
Just to stay even, your investments have to produce a rate of return equal to inflation.
Even if you trust all your funds to an investment adviser or to a mutual fund, you still have to know which adviser or which fund is most suitable to handle your money.
Most important of all is the fact that investing is fun. It’s fun to pit your intellect against that of the vast investment community and to find yourself rewarded with an increase in assets.

Investing in theory

All investment returns are dependent, to varying degrees, on future events. Investing is a gamble whose success depends on an ability to predict the future. Traditionally, the pros in the investment community have used one of two approaches to asset valuation: the firm foundation theory or the castle-in-the-air theory.

Firm-foundation theory

each investment instrument, be it a common stock or a piece of real estate, has a firm anchor of something called intrinsic value, which can be determined by careful analysis of present conditions and future prospects. When market prices fall below (rise above) this firm foundation of intrinsic value, a buying (selling) opportunity arises, because this fluctuation will eventually be corrected. The theory stresses that a stock’s value ought to be based on the stream of earnings a firm will be able to distribute in the future in the form of dividends. It stands to reason that the greater the present dividends and their rate of increase, the greater the value the stock; thus, differences in growth rates are a major factor in stock valuation.

castle-in-the-air theory

it concentrates on psychic values. John Maynard Keynes argued that professional investors prefer to devote their energies not to estimating intrinsic values, but rather to analyzing how the crowd of investors is likely to behave in the future and how during periods of optimism they tend to build their hopes into castles in the air. The successful investor tries to beat the gun by estimating what investment situations are most susceptible to public castle-building and then buying before the crowd.

An investment is worth a certain price to a buyer because she expects to sell it to someone else at a higher price.

The Madness of Crowds
– the Tulip-Bulb Craze
– The South Sea Bubble
– Wall street lays an egg
– The Soaring Sixties
– biotechnology and microelectronics
– Japanese real estate and stock markets
– Internet

History teaches us that very sharp increases in stock prices are seldom followed by a gradual return to relative price stability.

It is not hard to make money in the market. What is hard to avoid is the alluring temptation to throw your money away on short, get-rich-quick speculative binges.

in every case, the market did correct itself. The market eventually corrects any irrationality – albeit in its own slow, inexorable fashion.

The Firm-foundation Theory of Stock Prices

– A rational investor should be willing to pay a higher price for a share the larger the growth rate of dividends and earnings.
– A rational investor should be willing to pay a higher price for a share, other things being equal, the larger the proportion of a company’s that is paid out is cash dividends.
– A rational (and risk-averse) investor should be willing to pay a higher price for a share, other things being equal, the less risky the company’s stock.
– A rational investor should be willing to pay a higher price for a share; other things being equal, the lower are interest rates.
Two Caveats
Caveat 1: expectations about the future cannot be proven in the present. Predicting future earnings and dividends requires not only the knowledge and skill of an economist but also the acumen of a psychologist. And it is extremely difficult to be objective.
Caveat 2: Precise figures cannot be calculated from undetermined data. You can’t obtain precise figures by using indefinite factors.

What Can Charts tell you?

1.The first principle of technical analysis is that all info about earnings,dividends and the future performance of a company is automatically reflected in the company’s past market prices.
2.The second principle is that prices tend to move in trends: A stock that is rising tends to keep on rising, whereas a stock at rest tends to remain at rest.
3.Prices move in trends and trends tend to continue until something happens to change the supply-demand balance.

The Rationale for the Charting Method

Trends might tend to perpetuate themselves for either of two reasons. First, it has been argued that the crowd instinct of mass psychology makes it so. When investors see the prices of a speculative favorite going higher and higher, they want to jump on the bandwagon and join the rise.

The Techniques of Fundamental analysis

the fundamentalist’s primary concern is with what a stock is really worth. His most important job is to estimate the firm’s future stream of earnings and dividends. To do this, he must estimate the firm’s sales level, operating costs, corporate tax rates, depreciation policies, and the sources and costs of its capital requirements.

Using Fundamental and Technical analysis together

Rule 1: buy only companies that are expected to have above average earnings growth for five or more years. An extraordinary long-run earnings growth rate is the single most important element contributing to the success of most stock investment. The purchaser of a stock whose earnings begin to grow rapidly has a chance at a potential double benefit both the earnings and the multiple may increase.
Rule 2: never pay more for a stock than its firm foundation of value.Generally, the earnings multiple for the market as a whole is a helpful benchmark. What is proposed is a strategy of buying unrecognized growth stocks whose earnings multiples are not at any substantial premium over the market. In sum, look for growth situations with low price-earnings multiples. If the growth takes place, there’s often a double bonus – both the earnings and the multiple rise, producing large gains. Beware of very high multiple stocks in which future growth is already discounted. If growth doesn’t materialize, losses are doubly heavy – both earnings and the multiples drop.
Rule 3: Look for stocks whose stories of anticipated growth are of the kind on which investors can build castles in the air.

How good is Fundamental analysis?

1. Analysts can’t predict consistent long-run growth because it does not exist.
2. The careful estimates of security analysts do little better than those that would be obtained by simple extrapolation of past trends, which we have already seen are no help at all.
3. Of course, in each year some analysts did much better than average, but no consistency in their pattern of performance was found.
4. There are many funds beating the averages – some by significant amounts. The problem is that there is no consistency to performances.

the reason prices move in a random walk is just the opposite: the market is so efficient – prices move so quickly when new info does arise – that no one can consistently buy or sell quickly enough to benefit. And real news develops randomly, that is,unpredictably.




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