Tuesday, January 18, 2011

Timeless Advice

Here is a video interview with Burton Malkiel, Princeton economics professor and author of "A Random Walk Down Wall Street", one of the most important books ever written on the topic of investing. 

In the interview, Professor Malkiel defends the efficient market hypothesis (EMH), which has come under much criticism in recent years.  Critics have wrongly claimed that, if the EMH were true, markets would always price securities correctly, and, thus, stock market crashes like that of 2008 would not happen.  

These critics have incorrectly interpreted EMH, because it doesn't assert that market prices are correct, just that no individual can regularly provide "better" prices than the market as a whole, and thus, it is very unlikely for any investor to consistently "beat the market."

It's worth listening to Professor Malkiel's explanation: