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A Random Walk Down Wall Street
By Burton G. Malkiel, New York, W. W. Norton & Co., 1996, 522 pp., 6th Ed. Paperback, $15.95.
What causes wisdom to become conventional? In the case of security analysis the answer is A Random Walk Down Wall Street. When the book first appeared in 1973, its insights were neither conventional nor considered to be wise. We now know that two of the book's central points revolutionized the way academics and practitioners view investments.
The first point is that it is virtually impossible to beat the market consistently. Some of the implications are that even the best portfolio managers cannot consistently beat the market averages and that any apparent superior investment performance would be random, the result of pure chance. The second point is that while firm-specific risk can be reduced via diversification, overall market risk cannot. Therefore, one should not expect to receive any higher return by holding issues having...