Latest news with #BurtonMalkiel
New York Times
01-08-2025
- Business
- New York Times
The Stock Market Is Good, Bad and Ugly, Often in Quick Succession
Do you remember the best day in the U.S. stock market in the last 16 years? I didn't, even though it occurred just a few months ago. I had forgotten that the U.S. stock market rose nearly 10 percent on April 9 — a magnificent gain that I discounted, at the time, because it happened in the middle of the wild stock swings caused by the on-again-off-again Trump tariff announcements. April 9, as it turns out, ranked third among all of the best one-day returns in the U.S. market over the last 50 years. The market rallied after President Trump abruptly announced he would back down on many of his tariffs for 90 days — but it fell again sharply the next day, when it became clear that many tariffs, especially those on China, would still be extremely high. Even thinking about that episode makes my head spin. What's worth remembering as an investor is that the April 9 rally, and every one of the top 10 days of the last five decades, occurred soon after — and, often, right in the middle of — a terrible stock market decline. The market's best days don't define market trends so much as they represent brief eruptions of exuberance. Trying to forecast when the markets will rise and fall is a fool's errand. 'Don't kid yourself that you're smart enough to do better than just buying and holding the market,' said Burton Malkiel, the Princeton economist who in 1973 wrote the investing classic, 'A Random Walk Down Wall Street.' 'When you try to beat the market, you will undoubtedly do worse,' he said in a phone interview. Professor Malkiel is now the chief investment officer at Wealthfront, an automated investing firm, and he provided data on the best-performing days in the market over the last 50 years, along with another data maven, Alex Michalka, who leads Wealthfront's research. Mr. Malkiel pointed out that it would have been easy to miss the best days in the stock market precisely because they were all associated with the worst market declines. The Best Days Are Among the Worst The 10 best stock market days in the last 50 years have occurred during major declines. Total decline before the good day Reason for the decline Day's stock market return Global financial crisis Oct. 13, 2008 +11.4 % –40.9 % Global financial crisis Oct. 28, 2008 +9.8 –44.5 April 9, 2025 +9.7 Trump's tariffs –19.7 Covid-19 pandemic March 24, 2020 +9.3 –34.3 Covid-19 pandemic March 13, 2020 +9.0 –27.6 Oct. 21, 1987 +8.6 Black Monday –28.9 Covid-19 pandemic April 6, 2020 +7.1 –27.4 Global financial crisis March 23, 2009 +6.9 –48.4 Global financial crisis Nov. 13, 2008 +6.8 –44.2 Global financial crisis March 10, 2009 +6.4 –54.7 Total decline before the good day Reason for the decline Day's stock market return +11.4 % Oct. 13, 2008 –40.9 % Global financial crisis +9.8 Oct. 28, 2008 –44.5 Global financial crisis +9.7 Trump's tariffs April 9, 2025 –19.7 +9.3 Covid-19 pandemic March 24, 2020 –34.3 +9.0 March 13, 2020 –27.6 Covid-19 pandemic +8.6 Black Monday Oct. 21, 1987 –28.9 +7.1 Covid-19 pandemic April 6, 2020 –27.4 +6.9 March 23, 2009 –48.4 Global financial crisis +6.8 Nov. 13, 2008 –44.2 Global financial crisis +6.4 March 10, 2009 –54.7 Global financial crisis Source: Kenneth R. French (Dartmouth College), via Wealthfront Software By Karl Russell Want all of The Times? Subscribe.
Mint
15-05-2025
- Business
- Mint
Master smart investing with 7 timeless lessons from ‘A Random Walk Down Wall Street' by Burton Malkiel
Burton Malkiel's, 'A Random Walk Down Wall Street' remains an enduring and must read book for both seasoned investors and new investors. First published in 1973, the book provides timeless insights and words of wisdom that still remain highly significant in today's dynamic global markets. Here are seven lessons from this book every smart investor should recall while making investment decisions: Malkiel's core thesis is that markets clearly reflect all available information. He even stated that, 'A blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by experts.' This means it is a given that inefficiencies and shortcomings exist, that is why consistently beating the equity markets through stock selection or timing investments is something extremely difficult to do. Trying to predict short term market fluctuations and movements is a losing game. Even well trained professional fund managers struggle with timing markets. For the same Malkiel warns, 'Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves.' This simply means that investors should follow a calm, diligent and disciplined approach towards investing. As an investor, always try to look at the larger scheme of things and make investments with a long term vision. A well diversified portfolio helps in reducing risk without sacrificing long term returns. Malkiel suggests diversification and spreading of investments across sectors and geographies to prevent over-exposure in one asset. 'Diversification reduces risk without sacrificing expected return,' he states. Therefore, well thought out diversification of your portfolio will not only boost long term returns but it will also defend your portfolio from underperformance. Actively managed funds are often outperformed by low cost index funds that mirror market averages. This happens because of lower fees and relatively reduced trading activity. According to Malkiel, 'The investor who buys the market reaps the rewards of all companies that do well, and loses from those that don't.' Hence, the idea of investing in index funds for long term wealth creation should also be given its due consideration. To make the most of the power of compounding you should start your investment journey as early as possible. Starting early and investing on a consistent basis allow compounding to work its magic efficiently. Even small consistent contributions grow significantly over time, making patience an invaluable trait. 'Time is your friend; impulse is your enemy,' Malkiel suggests. Financial history is filled with episodes of irrational exuberance. From the dot-com bubble to the surge in speculative assets such as cryptocurrencies. Malkeil warns investors to never get caught up in market hype or the fear of missing out on a rally. 'A 'hot' tip is often a dangerous recipe for a cold sweat,' he believes, highlighting the dangers of following the herd mentality. Running behind popular stocks, trends or developments in equity markets may provide short lived excitement. Still, it often ends in regret. Malkiel on the other hand advocates staying humble in fundamentals and sticking to a calm and disciplined approach towards investing. Every single investment in equity markets carries risk, that is why understanding your own risk tolerance capacity helps in building a portfolio you can stick with during both bull markets and economic downturns. As Malkiel reminds us on similar lines to what even Warren Buffett has suggested, 'Risk comes from not knowing what you're doing.' Hence, to conclude, 'A Random Walk Down Wall Street' teaches that discipline, simplicity and composure trump thrill based short term strategies. Therefore, for anyone serious about building wealth, these timeless principles are as significant today as they were five decades ago. Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always consult a qualified advisor before making investment decisions.
Yahoo
12-05-2025
- Business
- Yahoo
How to Think About the Stock Market When Earnings Guidance Becomes Meaningless
Economist Burton Malkiel might have called the stock market 'a random walk,' but investors could at least use earnings guidance by companies as road signs. Now they are largely walking blind. Last week, BMW reiterated its 2025 financial guidance from mid-March, but included the assumption that the Trump administration would roll back some of the more-recent tariff increases starting in July. How Tariffs Are Crushing Small Businesses: 'Nobody in Power Seems to Care' When Leaving the House to Your Heirs Backfires Video of Sean Combs to Play Central Role in Sex-Trafficking Trial This Obscure New York Court Is Set to Decide Fate of Trump's Tariffs The Spring Home Sales Season Is Shaping Up to Be a Dud Though it will take a while, free trade across the U.S., Mexico and Canada 'will be restituted once again,' BMW Chairman Oliver Zipse told analysts last Wednesday. 'The disadvantages are far too big for everybody.' Given that the U.S. and China agreed Monday to suspend most tariffs, following the announcement of a deal with the U.K. last week, there may be some ground for Zipse's optimism. But equity analysts at Deutsche Bank weren't as certain following the earnings report. 'Obviously not everyone shares BMW's optimism,' they wrote to clients. While unorthodox, the German carmaker's predictions are one way to cope with the fact that nobody knows what the economy will look like in a few months' time. Ford, Jeep-owner Stellantis, Delta Air Lines, and UPS took another route, scrapping their 2025 guidance altogether. Others, such as General Motors, PepsiCo and Procter & Gamble, have lowered targets, while Volkswagen excluded tariffs from its outlook. United Airlines, creatively, offered one scenario for a stable environment and another for a recession. The current median expectation by Wall Street is that the S&P 500's earnings-per-share growth over the next 12 months will be 8.9%, which amounts to a forward price/earnings ratio of 20.6—historically elevated but in line with the average of the past five years. Here is the problem: Analysts take their cues from the same corporate executives who are now issuing meaningless forecasts. In reality, the index could be much more expensive than it looks. Goldman Sachs still sees a 45% chance of a recession over the next 12 months. Yet, after almost entering a bear market on April 8, the S&P 500 is now only about 4% below where it was at the start of the year. To be sure, a downturn is less likely than a month ago. President Trump has de-escalated his trade war, and official data for April showed no big deterioration in the job market, contradicting what 'soft' survey indicators were suggesting. Also, analysts aren't fully oblivious to the risks ahead: Despite first-quarter earnings figures coming in strong and more companies than average upgrading their second-quarter guidance, brokers still revised down their estimates for the second quarter by 2.4% in April—much more than they usually do. And they are applying larger downgrades to forecasts starting a year from now or later, which has historically been a decent predictor of the economy cooling. An argument can thus be made that investors are factoring in some chance of a recession or at least a severe slowdown, but also balancing that against a potential economic pop once U.S. consumers and businesses, which still have strong finances, make it through the next few months of chaos. This doesn't really make sense, though. Even if economic uncertainty itself ends up having no ill effect, it has now been confirmed that Trump's trade deals will leave many of the recently announced tariffs in place, which means import-cost increases are coming. Companies will soon need to either accept lower margins or push up prices, which will affect sales. Crucially, forward profit expectations for the S&P 500 and technology stocks in particular were already being downgraded before the trade war started. For reference, recessions typically involve a fall in earnings of 20% or more. Assuming a very benign scenario in which earnings-per-share growth fell simply to the five-year average of 7.9% and the forward P/E ratio rose back to the maximum around which it has hovered in recent years, which is 22, the S&P 500 would still have only about 6% upside. That isn't much when cash yields 4%. Rather than focus on shaky forecasts, however, investors 'may start gravitating toward looking at trailing earnings, because those are the ones that are real,' said Matt Stucky, chief equities portfolio manager at Northwestern Mutual. They might already be doing that to a certain extent. Cheap 'value' stocks, which have been very unloved over the past decade and a half relative to fast-growth Silicon Valley giants, have become the outperformers this year. 'There isn't a whole lot of hope priced into value stocks, but valuation gives you a cushion whereas hope doesn't,' said M&G Investments's Fabiana Fedeli. But this could ultimately make for a pretty bearish overall market, given that the promise of artificial intelligence remains the cornerstone of the U.S. investment case. If backward-looking P/E ratios are to be believed, valuations are extremely frothy, not far from those of the dot-com bubble. Wall Street veteran Jim Paulsen proposes another rule: Since the end of World War II, S&P 500 returns have closely followed a logarithmic line upward. And, while the current upward deviation isn't close to 1999 levels, returning to the trend over the next year would still imply a 15% fall. Perhaps investors should just diversify as much as they can and have a bias toward 'quality' companies with features such as balance sheets that can withstand extreme outcomes. Avoiding China-focused names such as Apple, this could argue for keeping the faith in market favorites such as Costco, Meta Platforms and Mastercard. Still, none of today's obscured investment paths might lead to particularly large gains. Write to Jon Sindreu at Tariff Shock Reverberates in the Bond Market My Friends and I Are Rethinking Our Spending Because of Economic Anxiety United and American Are in a Turf War at Chicago's O'Hare Gold Futures Slide on U.S.-China Trade Optimism But Uncertainty Remains EV Battery Giant CATL Plans to Raise Around $4 Billion in Hong Kong Listing Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Wall Street Journal
12-05-2025
- Business
- Wall Street Journal
How to Think About the Stock Market When Earnings Guidance Becomes Meaningless
Economist Burton Malkiel might have called the stock market 'a random walk,' but investors could at least use earnings guidance by companies as road signs. Now they are largely walking blind. Last week, BMW reiterated its 2025 financial guidance from mid-March, but included the assumption that the Trump administration would roll back some of the more-recent tariff increases starting in July.
