Burton Malkiel is a Princeton University finance professor whose distinguished career includes the presidency of the American Finance Association and a formative role as director of the Vanguard Group. In 1973, he published A Random Walk Down Wall Street, a book that popularised the academic insights of the ‘efficient market hypothesis’ and made it accessible to ordinary investors. The EMH argues that an ordinary investor cannot hope to make money by outsmarting the collective wisdom of the market unless he or she has access to exclusive information or exceptional analytical skills.
The book did not paint a favourable picture of fund managers’ ability to pick stocks. “The way I put it in my book, a blindfolded chimpanzee throwing darts at the stock pages could select a portfolio that would do as well as the experts,” he explained in a 2004 interview with me. Certainly, research by Malkiel and other financial economists found that fund managers’ average ability to pick stock was too modest to offset the transaction costs they incurred by trading in and out of such stocks, let alone compensate for the fat fees they were charging.
Despite a scathing initial review in Businessweek (“who said it was the biggest piece of garbage they’d ever seen in the world,” Malkiel recalled), the book became a bestseller and sold more than a million copies. The book is now in its ninth edition, and has been translated into more than ten languages.
For more than a decade, The Wall Street Journal ran a column based on the ape throwing darts concept.
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