I definitely recommend this book. All investors should understand the Efficient Market Theory and know what it presumably implies. Oddly enough though, I do not subscribe to the theory. The reason most fund managers fail to beat passive indexes is simply because of 1)fees, 2)not adhering to a rational investment approach, 3)buying what everyone else is buying (which goes with #2). The simple fact is that inefficiences in the market, due to the short term emotional whims of investors, DO create buying opportunities, and the records of people like Lynch, Buffett, Graham, Neff, Miller and others is proof of this. Malkiel writes off these exceptions to his theory as luck. What is interesting though is that no successful stock picker ever subscribed to EMT and no EMT adherent has ever been a successful stock picker. A theory that can only explain its violations by saying it was chance is a very weak theory. Read this book, but don't be fooled by it. Read lots of other books by Lynch, Neff, books on Buffett, John Train, etc. These will be a good balance. Lastly, remember Malkiel is an academician, not a practitioner. His ivory tower perspective is hardly the last word on the subject. I would especially recommend reading the letters of Buffett to Berkshire Hathaway stock holders. Buffett in effect says to the Efficient Market theorists: "If you're so smart, how come I'm so rich?"

I wish I had read this book sooner. If you are considering investment in anything other than a broadly diversified index fund and holding it for the long term through the inevitable downturns then you would be well advised to read this book.

Put simply, Malkiel's argument is that buying and holding an index fund is the easiest way for the average joe to make money in the market if they are willing to hold on tight during the market dips. He does not discourage the outright purchase of individual securities as well as other more risky financial instruments, but he does demonstrate that the odds are stacked against you for long term success in such endeavors when all the pitfalls are considered (i.e. capital gains taxes, brokerage commissions, the utter folly in trying to time your buys/sells, your ability to sleep soundly, etc.).

I would also point out that the book is not without it's more technical sections. Much of it involves some minor mathematical examples. Nothing beyond the level of high school algebra and statistics, but if you are not enthralled with such a prospect then you might look for something more fuzzy such as The Motley Fool Investment Guide by the Brothers Gardner or One Up On Wall Street by Peter Lynch. Both of these works also herald the index fund while offering suggestions for individual stock picking strategies for the more daring/foolish/Foolish among us.

Overall you may find this book to be iconoclastic in it's approach to the Wall Street Wise. Remember that the majority of mutual funds have underperformed the market averages over the long term - food for thought.

This is less an investment guide than it is a guide to the kind of thinking that takes place on Wall Street and in university economics departments. Whether you agree with the Random Walk theory or not is almost irrelevant. A person who is seriously interested in investment should find that this book is informative. Burton Malkiel does not believe that you can consistently outperform the market, but the message is less important than how his argument is approached.

Malkiel begins by discussing how stocks are valued and provides two theories: the firm-foundation, and the castle-in-the-air theory. The former is the idea that firms have "intrinsic value," a theory that value-investors espouse, while the latter is a speculative approach that deals with human psychology. He then tries to figure out whether or not these theories are practical. If applied, can you make money in the market? Most popular books on investing can probably be fit into one of these two categories so this question is important. In his analysis, Malkiel concludes that there is no reason to find either theory attractive. If you disagree with him, however, it doesn't make his book worthless. His discussion on the theories is what is valuable.

He then discusses the academic discoveries of modern portfolio theory, the capital-asset pricing model, and a little bit of arbitrage pricing theory in simple terms in order to explain the attempts that have been made to measure risk. The most important concept here for the lay reader is modern portfolio theory, which is usually explained in books as "you should diversify to reduce risk." Here, Malkiel explains why this is so, and he does this without using standard deviation and covariance measurements.

Finally, he takes on attacks to his argument, and offers various counter-arguments. Then the last section offers advice to investors-a sort of financial planning guide based on the material in previous chapters.

The value of this book lies in the way he presents his material, and his explanations of various ways of thinking about asset returns, risk, investor psychology, and diversification. Few other books for the general reader on investment are as informative as this, and Malkiel's ideas have a strong foundation. After all, the average investor won't beat the market. He can't. And you can't publish information that will allow you to continuously find inefficiencies in the market, because though there may be opportunities to profit at first, they will eventually disappear as more people find them. So it is sound, I think, to advise no-load indexed mutual funds.

Some of the negative responses here are very reactive. It is as if, by arguing for the Random Walk theory, Malkiel has spoken a personal insult. Judging by the reviews, many seem not to have read the book completely, or even at all. Some reviews decry academia altogether, and say nothing else, and some misinterpret the author (he does not believe that inefficiencies don't exist). Such reviews should be read with caution. If you do hate academia for some personal reason, don't read this book. If you are a proud and firm believer that you can consistently take advantage of market inefficiencies and come out on top, and if you can't stand someone questioning such a position, don't read this book. But those who have only read investment books that have little evidence and theoretical background and want something a little heavier, something to expand their understanding of how to think about investments, I find this book to be a worthwhile choice.