Burton Malkiel
Economist and author of A Random Walk Down Wall Street
Born 1932
Argued that share prices are difficult to predict and that most investors are better served by low-cost diversified funds.
Biography
Burton Malkiel is an American economist, born in 1932, whose 1973 book A Random Walk Down Wall Street did more than any academic paper to bring the case for index investing to ordinary readers. The argument is that share price movements are close enough to unpredictable that the effort spent forecasting them is better spent on the things an investor controls: cost, diversification and holding period.
He is the Chemical Bank Chairman’s Professor of Economics, Emeritus, at Princeton University, and served as dean of the Yale School of Management. He was a member of the Council of Economic Advisers in the mid-1970s and spent many years as a director of the Vanguard Group, which placed him close to the practical growth of index funds as well as the theory behind them.
The book has been revised repeatedly across five decades, which is unusual and informative: each edition has had to address whatever new approach was claimed to beat the market in the intervening years. Malkiel has generally conceded that markets are not perfectly efficient while maintaining that they are efficient enough to make persistent outperformance difficult after costs.
Career timeline
- 1932Born in Boston, Massachusetts.
- 1964Completes a PhD in economics at Princeton University.
- 1973Publishes the first edition of A Random Walk Down Wall Street.
- 1975Appointed to the Council of Economic Advisers.
- 1981Becomes dean of the Yale School of Management.
- 1988Returns to Princeton University.
- 2012Becomes chief investment officer of Wealthfront.
His approach to markets
Malkiel’s position is not that markets are perfect. It is that they are competitive enough that new information is reflected quickly, and that this makes reliable forecasting hard enough to be a poor use of an ordinary investor’s effort. The random walk metaphor describes the difficulty of prediction rather than a claim that prices are meaningless.
From that follows a focus on what is controllable. An investor cannot reliably control returns, but can control costs, the breadth of diversification, the tax treatment of the account, and whether they stay invested. Malkiel’s recommendations have consistently concentrated on those levers rather than on selection.
He has engaged seriously with the anomalies literature over successive editions rather than dismissing it, conceding documented patterns while arguing that they tend to shrink once trading costs and the difficulty of implementation are included.
Key ideas
Tap any idea to expand a plain-English explanation, why it matters, and where to learn more.
Prices are hard to forecast
Price movements incorporate available information quickly enough that future moves are close to unpredictable from past ones.
If forecasting is unreliable, the effort spent on it has a poor expected payoff compared with reducing cost.
The book’s well-known image is that a blindfolded selection could perform comparably to expert picks, which is a claim about the difficulty of forecasting.
Cost is the reliable lever
Fees are certain and compound against the investor, while outperformance is uncertain.
It reframes fund selection around something knowable in advance rather than around past performance.
A difference of one percentage point in annual cost compounds into a large difference over a multi-decade holding period.
Broad diversification as a default
Holding the whole market removes the need to identify which parts of it will do well.
It converts an unanswerable forecasting question into a straightforward allocation decision.
A total market index fund holds the winners without requiring that they be identified in advance.
Rebalancing over prediction
Periodically restoring target weights imposes discipline without requiring any view about the future.
It provides a rule for acting during volatile periods, when discretionary decisions tend to be worst.
Restoring a target mix after a sharp move requires no forecast, only a rule agreed in advance.
Major contributions
- Wrote A Random Walk Down Wall Street, the most widely read popular case for index investing.
- Brought the random walk hypothesis and efficient markets research to a general readership.
- Served for many years as a director of the Vanguard Group during the growth of index funds.
- Engaged with the anomalies literature across successive editions rather than dismissing it.
- Served on the Council of Economic Advisers and as dean of the Yale School of Management.
Major successes
- Published A Random Walk Down Wall Street in 1973, which has remained in print through repeated revised editions for five decades.
- Served as a director of the Vanguard Group across a period in which index funds moved from novelty to default.
- Appointed to the Council of Economic Advisers in 1975.
- Served as dean of the Yale School of Management from 1981 to 1988.
- Became chief investment officer of Wealthfront, applying the approach in an automated advice setting.
Important books
- A Random Walk Down Wall Street1973
The popular case that price movements are hard to forecast and that cost and diversification are the reliable levers. Revised across many later editions.
- The Elements of Investing
A short book written with Charles Ellis distilling the argument into a small number of practical principles.
Influence on investors
A Random Walk Down Wall Street is the book most often credited with persuading individual investors to hold index funds, and it reached an audience that the underlying academic literature never would have.
Malkiel and Charles Ellis arrived at similar practical conclusions from different starting points, one from efficient markets research and one from studying institutional performance, and their jointly written short book reflects that convergence.
Criticisms and debates
A balanced view includes the main criticisms and open debates, presented neutrally.
- Critics argue the efficient markets framing understates how far prices can move from any reasonable assessment of value, pointing to episodes such as the late 1990s technology boom.
- Behavioural researchers contend that documented and persistent investor biases sit awkwardly with the assumption that prices reflect information rationally.
- The random walk description has been challenged by evidence of momentum and long-horizon mean reversion in returns.
- Some argue that the growth of index investing itself raises questions about price discovery that the original framework did not have to address.
- The advice is aimed at long-horizon investors and does not address the situation of someone who may need the money during a severe drawdown.
Lessons for investors
Plain-English takeaways. Context for learning, not advice to buy or sell anything.
- 1Focus on cost, diversification and holding period, because those are the parts you actually control.
- 2Treat past fund performance as weak evidence about future performance, and fees as strong evidence about future drag.
- 3Use a rebalancing rule so that volatile periods do not require a fresh forecast.
- 4Expect to encounter a persuasive new approach every few years, and judge it after costs.
Notable quotes
“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.”
“Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes.”
Frequently asked questions
Who is Burton Malkiel?
Burton Malkiel is an American economist born in 1932, emeritus professor at Princeton University, and the author of A Random Walk Down Wall Street, first published in 1973.
What does a random walk mean here?
It describes price movements that are close to unpredictable from past movements, because new information is incorporated quickly. It is a statement about the difficulty of forecasting rather than about prices being arbitrary.
What is the main argument of the book?
That because reliable forecasting is difficult, investors are generally better served by concentrating on what they control: low costs, broad diversification and a long holding period.
Does Malkiel think markets are perfectly efficient?
No. He has acknowledged documented anomalies and periods of clear mispricing, while arguing that markets are competitive enough that consistently exploiting them after costs is difficult.
How is he connected to index funds?
He made the popular case for them in print and served for many years as a director of the Vanguard Group, so he was close to both the argument and its practical implementation.
What are the main criticisms of his position?
That efficient markets understate how far prices can detach from value, that behavioural evidence sits awkwardly with rational pricing, and that documented momentum effects challenge a strict random walk description.
Related quotes
Other people in the library writing on the same themes.
“A low-cost index fund is the most sensible equity investment for the great majority of investors.”
Warren Buffett“All I want to know is where I am going to die, so I will never go there.”
Charlie Munger“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.”
Benjamin GrahamStrategies Burton Malkiel is associated with
How the money actually gets run, with the mechanics, the costs and the failure modes set out in full.
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