Today we're going to discuss some of the key takeaways from the book A Random Walk
Down Wall Street. I'll talk about the main overarching theory in the book as well as
some of the actionable points of advice that the author gives. People's opinion of this book widely
varies. If you are a day trader you probably hate this book. If you are a long term investor you
probably either like or love this book. A lot of these finance and investing books can be extremely
verbose to basically get to a really simple conclusion. So we're going to jump right in to the
main overarching theory of this book - a random walk theory. Basically the author of A Random Walk
Down Wall Street believes that the market cannot be predicted. It cannot be predicted by past
movement and there's no way to tell what it will do in the future. This is the book that brought
up the concept that a monkey throwing a dart could predict stock trends just as well as any so called
experts. He believes that stock prices are totally independent of anything else and so by saying this
he's basically shooting down technical analysis, market timing, and even fundamental analysis. So
his reasoning with these is that with technical analysis and if you are trying to time the market,
a lot of this is based on pattern and human psychology and he argues that as more and
more people catch on to these patterns then it becomes easier for the patterns and trends to
actually break themselves. So one of the examples that he gives is everyone trying to buy stocks
in late December and sell them in the first week of January when the markets are really moving.
Eventually as more and more people catch onto this you would have to start buying even earlier
in December and selling even earlier in January to beat all the other people to it that are
trying to jump onto this trend or this pattern. He points out that that can pretty much apply
to anything. And his argument against fundamental analysis is that you don't necessarily also know
that the data that these companies are presenting is totally accurate. And he also points out that
in some industries and with some businesses in particular, it's hard to predict what their
fundamental value will be later out into the future. Especially with things like emerging
technology and just these new concepts and ideas that we haven't really had before. It's hard to
put a value on those companies. And again this is the author's opinion - I'm sure that Warren Buffet
and Cathie Wood would likely disagree with a lot of this. So honestly that's the majority of the
book is just this idea that the market is random and that stock prices are random. It isn't until
the last chapter or so of the book that the author actually gives you actionable steps that you can
take to get your own finances in order. So that is what we're going to talk about now. There are
10 tips that the author gives. And the first one is to have protection set up for yourself.
So he really means two things when he's talking about this. First he talks about setting up a
regular savings program for yourself. So always setting aside a certain amount of money that you
are saving toward your future that you don't touch for any other reason. He also briefly talks about
having insurance for protection. So this could be either actually buying life insurance, or he even
talks about just having your own investments, or a combination of both. The second tip that he has
is to determine your own investing objectives. So he several times throughout the book mentions that
when you are investing you are either going to be able to eat well or to sleep well. And he gives
this scenario of a guy who is telling his friend about his investments, and he's like oh my gosh I
can't sleep at night because I'm so worried about my investments. What do I do? And the other friend
suggests that he should be investing enough that he can sleep well at night, but not investing so
much of what he has that he's staying up worrying about what could go wrong. So basically the point
that he's trying to make is that there's always a balance with how much you should personally
be investing, and what you're comfortable with investing or investing in is going to vary from
person to person. The 3rd tip that he gives is to dodge Uncle Sam whenever you can. And
he's not talking about tax evasion because that's definitely illegal. But what he's talking about is
to use these different account types and different investing accounts to your advantage. So there are
different types of IRAs, there are even college savings plans and even a Roth IRA. And each one
serves a slightly different purpose and can benefit your tax situation in different ways.
So with this third tip he's just saying to learn about all of these and tailor those accounts to
your particular situation so that you can get the maximum amount of return out of your money that
you're actually putting into these accounts. The 4th tip is to have a plan for your cash and for
your shorter term goals. The key takeaway with this one is to make sure that you are letting
your cash at least keep up with inflation if not make a little bit more. So for shorter term goals
where you may be saving money for a year or two but you know that you're going to need that,
he suggests looking into money market funds, into bank CDs, into tax exempt money market funds,
and he also talks about using online banks as an alternative to regular brick and mortar banks so
that you get a little bit better interest rate. Part of the reason why online banks are usually
able to offer a little bit better interest rate is because they don't have the overhead of those
physical locations. So you could use things like Capital One 360 or Discover or Ally Bank or Novo
if you have a business. And these are all banks with a little bit higher yield than you would
get at somewhere like Chase or Wells Fargo. So by putting it there you're helping your cash at least
keep up a little bit with the level of inflation. The 5th tip that he has is to look into adding
bonds into your portfolio. So some people love bonds, some people hate them, but he does give a
list of different types of bonds that you can look at. Some have different tax advantages, so again
just seeing if those may or may not fit into your investing style. The 6th tip is to own your own
home instead of renting. This is a highly divided subject, and I'll do another entire video on this,
but in some cases and in some cities, it doesn't always make sense to buy instead of renting.
So in my opinion this depends on your situation. But the author thinks that you should buy your
home instead of renting. The 7th tip he has is to look into REITs or real estate investment trusts.
So we've talked about this briefly in a couple other videos, but these are basically a way for
you to get into real estate investing through your investment portfolio without you having to
physically own any real estate. You're essentially putting money into these little real estate funds,
where they own and operate different real estate. It could residential, it could be commercial,
it could be for a specific industry like hospitals or retirement homes. So this tip that he has is
just to look into those more and again see if those are something that you would want to add
to your own portfolio. The 8th tip that he has is to tiptoe through gold and different collectibles.
So we've also talked about this briefly, but there are definitely ways that you can invest
outside of the stock market. For some people this is things like precious metals. For other people
it's collectibles like Pokemon cards. So number 8 is to look into these alternative investments
but to also be a little bit weary of them. The 9th tip that he gives is to watch out
for commission costs. Nowadays this isn't as much of an issue. Most brokerages are commission free.
But depending on what you are investing in and your investing or trading style, there are other
fees that can pop up. So revising this more for modern day, we're going to say that number 9 is
just to watch out for fees. Make sure that you are choosing the brokerage with the lowest fees
for whatever you are trying to do. And number 10 is to diversify. So if you read through this book,
you can tell that this author his main strategy is just buy and hold ETFs and that's pretty much it.
But it does go back to those other things that he suggested so looking into bonds, into REITs,
into things like gold and collectibles to spread your money around a little bit and not be
totally invested all in one thing. Again, not putting all of your eggs in one basket.
If you do read this book, there are many times throughout it where The Intelligent Investor
is mentioned which is another investing book. And if you want to see a summary and the key
takeaways from The Intelligent Investor, click on this video and I will see you guys over there.