Malkiel, Burton G(ordon) 1932-
MALKIEL, Burton G(ordon) 1932-
PERSONAL: Born August 28, 1932, in Boston, MA; son of Sol and Celia (Gordon) Malkiel; married Judith Atherton, July 16, 1954 (marriage ended); married Nancy Weiss (a college dean), July 31, 1988; children: (first marriage) Jonathan. Education: Harvard University, B.A., 1953, M.B.A., 1955; Princeton University, Ph.D., 1964.
CAREER: Smith Barney & Co., New York, NY, associate, 1958-60; Princeton University, Princeton, NJ, assistant professor, 1964-66, associate professor, 1966-68, professor of economics, 1968-81, Gordon S. Rentschler Memorial Professor of Economics, 1969-81, chair of department, 1974-75, 1977-81; Yale University School of Organization and Management, New Haven, CT, dean, 1981-87; Princeton University, Chemical Bank Chairman's Professor of Economics, 1988—. Member of board of directors of several companies, including Prudential Insurance Company of America, 1973—, and Vanguard Group of Investment Companies, 1977—; member, President's Council of Economic Advisors, 1975-77; governor, American Stock Exchange, 1978—. Military service: U.S. Army, 1955-58; became first lieutenant.
MEMBER: American Economic Association, American Finance Association (president, 1979; member of board of directors, 1979-84).
AWARDS, HONORS: D.H.L., University of Hartford, 1971.
The Term Structure of Interest Rates: Expectations and Behavior Patterns, Princeton University Press (Princeton, NJ), 1966.
(With Richard E. Quandt) Strategies and Rational Decisions in the Securities Options Market, MIT Press (Cambridge, MA), 1969.
The Term Structure of Interest Rates: Theory, Empirical Evidence, and Applications, McCaleb-Seller (New York, NY), 1970.
(With Paul B. Firstenberg) Managing Risk in an Uncertain Era: An Analysis for Endowed Institutions, foreword by Roger G. Kennedy, Princeton University Press (Princeton, NJ), 1976.
(With George M. von Furstenberg) The Government and Capital Formation: A Survey of Recent Issues, American Enterprise Institute (Washington, DC), 1978.
The Inflation Beater's Investment Guide: Winning Strategies for the 1980s, W. W. Norton (New York, NY), 1980, new edition published as Winning Investment Strategies: The Inflation-Beaters Guide, 1982.
(With John G. Cragg) Expectations and the Structure of Share Prices, University of Chicago Press (Chicago, IL), 1982.
(With J. P. Mei) Global Bargain Hunting: Investment Opportunities in Emerging Markets, Simon & Schuster (New York, NY), 1998.
The Random Walk Guide to Investing: Ten Rules for Financial Success, W. W. Norton (New York, NY), 2003.
Also contributor to Earn More (Sleep Better): The Index Fund Solution, by Richard E. Evans, Simon & Schuster (New York, NY), 1999.
SIDELIGHTS: Fortune magazine has called Burton G. Malkiel "the man your fund manager hates." Malkiel, a professor of economics and governor of the American Stock Exchange, is best known for his book A Random Walk down Wall Street, which challenges the value of professional money managers, or, as he once put it in a phrase now famous on Wall Street: A "blindfolded monkey throwing darts at a newspaper's financial pages" could pick stocks as well as financial professionals. This quote has became so popular that from 1988 to 2002 the Wall Street Journal had an "Investment Dartboard" feature, which pitted money managers against random dart-throwers to see which would prove more successful. Malkiel himself threw the first dart.
Malkiel got his start as an investment banker at Smith Barney & Company, but most of his career has been spent in academia, primarily at Princeton University. While his service on various corporate boards and his stint as a member of President's Council of Economic Advisors have given him hands-on experience, his influence has come primarily through his writings. His first book, The Term Structure of Interest Rates: Expectations and Behavior Patterns, was a specialist's look at the historical pattern of yield curves and the effect of transactional costs on the bond market. "This is indeed a very good book," asserted Canadian Journal of Economics contributor Thomas J. Courchene. "On both the theoretical and empirical levels, it makes significant contributions to the termstructure literature."
In Strategies and Rational Decisions in the Securities Options Market Malkiel and collaborator Richard Quandt take a look at the whole subject of portfolio management. "Portfolio studies generally consider how an investor should select a portfolio from a variety of securities, each of which has a particular distribution of expected returns," explained W. David Neibuhr in the Journal of Finance. "Malkiel and Quandt, however, examine a different type of portfolio problem: How should an investor choose among the alternative methods of investing in a particular stock?" The authors provide a look at the options market, including a critique of empirical models that fail to take transaction costs and taxes into account, and provide advice to investors seeking the right mix of investment strategies. Throughout, they draw on game theory, running over one thousand theoretical experiments to determine the best mix in different circumstances. Writing after the successful debut of the Chicago Board Options Exchange in 1973, Journal of Risk and Insurance contributor Robert T. LeClair suggested, "This book should be a valuable starting point and reference for anyone contemplating the trading of various types of options…. While it may be too academic for some it should nonetheless stimulate a good deal of thinking about this potentially dynamic new market." Other Malkiel titles have also garnered considerable attention and favorable mention. Journal of Economic Literature contributor Peter Bernstein, for example, found Expectations and the Structure of Share Prices "essential reading for both theoreticians and practitioners who are interested in the measurement of risk and its influence on the structure of security prices."
Many experts agree, however, that Malkiel's breakout book is A Random Walk down Wall Street. As Robert Elder described the book's thesis in the Austin American-Statesman, "For 30 years, in eight editions of his investing classic … Malkiel has told the truth about beating the market. You can't. Mr. Market is smarter than you are." Mr. Malkiel contends that new information is reflected in stock prices so quickly and efficiently that it immediately drives the price up or down, regardless of fundamentals or past performance. In essence, a company's stock price takes a "random walk" that is completely unpredictable, despite the best efforts of money managers. Hence Malkiel's assertion that a blindfolded monkey could do just as well in picking stocks. Instead, Malkiel recommends investing in index funds, such as the Standard & Poor's index of 500 key stocks, to essentially bet on the success of the stock market itself rather than any particular stock or portfolio of stocks.
Naturally, Malkiel's provocative thesis, and his book's long shelf life, have resulted in a great deal of commentary from financial writers, not all of it favorable. Forbes contributor Mark Hulbert, reviewing the book's fifth edition, wrote that "Malkiel remains rhetorically committed to the idea that the market is efficient. But a close comparison of his various editions reveals that he has actually made subtle changes to accommodate the growing body of evidence that it isn't." Hulbert noted in particular an entirely new chapter on the market's inefficiencies, despite the underlying thesis that the market is unbeatably efficient. Reviewing the seventh edition for Kiplinger's Personal Finance Magazine, Robert Frick suggested that, despite Malkiel's theory, for "broad swaths of the market, such as stocks of small growth companies, indexes don't outperform most funds." Still, Frick found "this latest edition worth the read."
But Malkiel also has many fans. In a 1999 article, a Fortune contributor commented, "Few investment calls have been so right for so long as the one that Burton Malkiel made 26 years ago." As Booklist reviewer David Rouse pointed out, "Almost every list of mustread investment guides … includes Malkiel's Random Walk." After three decades, the book remains a perennial bestseller, and in 2003 Malkiel came out with another revised edition, as well as The Random Walk Guide to Investing: Ten Rules for Financial Success, which is specifically designed for a new generation of first-time investors.
BIOGRAPHICAL AND CRITICAL SOURCES:
Austin American-Statesman, November 6, 2003, Robert Elder, "Financial Expert Tells Investors to Stay Calm about Markets."
Booklist, May 1, 1999, David Rouse, review of A Random Walk down Wall Street: Including a Life-Cycle Guide to Personal Investing, p. 1566.
Business Economics, April, 1997, review of A Random Walk down Wall Street, p. 8128.
Business Week, May 31, 1999, "Can You Really Beat the Market?," p. 144.
Canadian Journal of Economics, February, 1968, Thomas J. Courchene, review of The Term Structure of Interest Rates: Expectations and Behavior Patterns, pp. 151-153.
Economica, February, 1984, John A. Carlson, review of Expectations and the Structure of Share Prices, pp. 100-101.
Economist, July 17, 1999, review of A Random Walk down Wall Street, p. 8128.
Forbes, July 23, 1999, Mark Hulbert, "A Walk with Purpose," p. 382; October 21, 1996, Mark Hulbert, review of A Random Walk down Wall Street, p. 318.
Fortune, December 20, 1999, "The Man Your Fund Manager Hates," p. 134.
Journal of Economic Literature, March, 1971, Warren H. Hausman, review of Strategies and Rational Decisions in the Securities Options Market, pp. 114-115; March, 1984, Peter Bernstein, review of Expectations and the Structure of Share Prices, pp. 125-126.
Journal of Finance, September, 1970, W. David Neibuhr, review of Strategies and Rational Decisions in the Securities Options Market, pp. 969-971.
Journal of Risk and Insurance, March, 1974, Robert T. LeClair, review of Strategies and Rational Decisions in the Securities Options Market, pp. 166-167.
Kiplinger's Personal Finance Magazine, March, 1996, Ken Sheets, review of A Random Walk down Wall Street, pp. 36-40; July, 1999, Robert Frick, "More Random Common Sense on Stocks," p. 32.
Library Journal, May 15, 1980, Randy Rafferty, review of The Inflation Beater's Investment Guide: Winning Strategies for the 1980s, p. 1158; June 1, 1990, S. J. Mayover, review of A Random Walk down Wall Street, p. 140; April 1, 2003, Richard Drezen, review of A Random Walk down Wall Street: The Time-Tested Strategy for Successful Investing, p. 111.
Money, August 1, 1999, "The Best Personal Finance Books," p. 95; June 1, 2002, Cybele Weisser, "Portfolio Theory: A Random-Walk Experiment Ends," p. 34.
Toronto Star, April 11, 2001, "Legendary Author Still Offering Sound Advice," p. BU3.
Yale Law Journal, June, 1974, Pater Barack, "The Random Road to a New Stability," pp. 1516-1533.*