Cocktail Economics: Discovering Investment Truths from Everyday Conversations

Chapter 15. A Rational Walk Down Wall Street: Darting Between Passive and Active When the Odds Are in Your Favor

In 1973, Burton Malkiel delivered what would become a seminal tome on the virtues of passive investing. Entitled A Random Walk Down Wall Street, Malkiel’s book, now in its eighth edition, takes on all forms of active investing, from rigorous fundamental analysis to the outlandish idea of basing stock movements on the results of the latest Super Bowl. Malkiel’s conclusion, consistent with the passive-only mantra, is that when the added costs of active investing are factored in, passive investing will regularly beat active investing over the long run.

Again, average is not a dirty word to the purveyors of passive investing. But these advocates ...