Burton Malkiel Quotes

“A firm's income statement may be, likened to a bikini. What it reveals is interesting but what it conceals is vital.”

“A successful investor is generally a well-rounded individual who puts a natural curiosity and an intellectual interest to work.”

“Experience conclusively shows that index-fund buyers are likely to obtain results exceeding those of the typical fund manager, whose large advisory fees and substantial portfolio turnover tend to reduce investment yields. Many people will find the guarantee of playing the stock-market game at par every round a very attractive one. The index fund is a sensible, serviceable method for obtaining the market's rate of return with absolutely no effort and minimal expense.”

“Historically, the stock market is like a gambling casino with the odds in your favor. Over the long pull, stocks are given something like nine and a half to ten percent compounded per year. The banks have probably given you something in the order of four to five.”

“I have become increasingly convinced that the past records of mutual fund managers are essentially worthless in predicting future success. The few examples of consistently superior performance occur no more frequently than can be expected by chance.”

“I have never known anyone who could consistently time the market. And in fact I’ve never known anyone who knows anyone, who was able to consistently time the market.”

“Index funds are tax friendly, allowing investors to defer the realization of capital gains or avoid them completely if the shares are later bequeathed. To the extent that the long-run uptrend in stock prices continues, switching from security to security involves realizing capital gains that are subject to tax. Taxes are a crucially important financial consideration because the earlier realization of capital gains will substantially reduce net returns.”

“Index funds do not trade from security to security and, thus, they tend to avoid capital gains taxes.”

“Index funds have regularly produced rates of return exceeding those of active managers by close to 2 percentage points. Active management as a whole cannot achieve gross returns exceeding the market as a while and therefore they must, on average, underperform the indexes by the amount of these expense and transaction costs disadvantages.”

“It has become increasingly clear to me that one’s capacity for risk-bearing depends importantly upon one’s age and ability to earn income from non-investment sources. ”

“It's not that stock prices are capricious. It's that the news is capricious.”

“J.P. Morgan once had a friend who was so worried about his stock holdings that he could not sleep at night. The friend asked, 'What should I do about my stocks?' Morgan replied, 'Sell down to your sleeping point'.

Every investor must decide the trade-off he or she is willing to make between eating well and sleeping well. High investment rewards can only be achieved at the cost of substantial risk-taking. So what is your sleeping point? Finding the answer to this question is one of the most important investment steps you must take.”

“Many of us economists who believe in efficiency do so because we view markets as amazingly successful devices for reflecting new information rapidly and, for the most part, accurately.”

“The lesson about timing is: not only do you not know when to get in, you don’t know when to get out. And when you market-time you got to be right twice. You got to know when to get out and when to get in. And nobody and I really believe this: nobody but nobody can do that.”

“The surest way to find an actively managed fund that will have top-quartile returns is to look for a fund that has bottom-quartile expenses.”

“We conclude that hedge funds are far riskier and provide much lower returns than commonly supposed.”

“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.”

“A couple, both age seventy-eight, went to a sex therapist’s office. The doctor asked, “What can I do for you?” The man said, “Will you watch us have sexual intercourse?” The doctor looked puzzled, but agreed. When the couple finished, the doctor said, “There’s nothing wrong with the way you have intercourse,” and charged them $50. The couple asked for another appointment and returned once a week for several weeks. They would have intercourse, pay the doctor, then leave. Finally, the doctor asked, “Just exactly what are you trying to find out?” The old man said, “We’re not trying to find out anything. She’s married and we can’t go to her house. I’m married and we can’t go to my house. The Holiday Inn charges $93 and the Hilton Inn charges $108. We do it here for $50, and I get $43 back from Medicare.”

“A stock selling at $100 per share with earnings of $10 per share would have the same P/E multiple (10) as a stock selling at $40 with earnings of $4 per share. It is the P/E multiple, not the price, that really tells you how a stock is valued in the market.”

“Daniel Kahneman has argued that this tendency to overconfidence is particularly strong among investors. More than most other groups, investors tend to exaggerate their own skill and deny the role of chance. They overestimate their own knowledge, underestimate the risks involved, and exaggerate their ability to control events.”

“For many of us, trying to outguess the market is a game that is much too much fun to give up. Even if you were convinced you would not do any better than average, I'm sure that most of you with speculative temperaments would still want to keep on playing the game of selecting individual stocks with at least some portion of the money you invest.”

“Forecasts are difficult to make—particularly those about the future.”

“I view investing as a method of purchasing assets to gain profit in the form of reasonably predictable income (dividends, interest, or rentals) and /or appreciation over the long term.”

“If you bought $1,000 worth of Nortel stock one year ago, it would now be worth $49. If you bought $1,000 worth of Budweiser (the beer, not the stock) one year ago, drank all the beer, and traded in the cans for the nickel deposit, you would have $79. My advice to you… start drinking heavily.”

“In crowds it is stupidity and not mother-wit that is accumulated, Gustave Le Bon noted in his 1895 classic on crowd psychology.”

“It is not hard to make money in the market. What is hard to avoid is the alluring temptation to throw your money away on short, get-rich-quick speculative binges. It is an obvious lesson, but one frequently ignored.”

“It is the definition of the time period for the investment return and the predictability of the returns that often distinguish an investment from a speculation. A speculator buys stocks hoping for a short-term gain over the next days or weeks. An investor buys stocks likely to produce a dependable future stream of cash returns and capital gains when measured over years or decades.”

“Kahneman and Tversky concluded that losses were 2½ times as undesirable as equivalent gains were desirable. In other words, a dollar loss is 2½ times as painful as a dollar gain is pleasurable. People exhibit extreme loss aversion, even though a change of $100 of wealth would hardly be noticed for most people with substantial assets. We’ll see later how loss aversion leads many investors to make costly mistakes.”

“Look for growth situations with low price-earnings multiples. If the growth takes place, there’s often a double bonus—both the earnings and the multiple rise, producing large gains. Beware of very high multiple stocks in which future growth is already discounted. If growth doesn’t materialize, losses are doubly heavy—both the earnings and the multiples drop.”

“Never buy anything from someone who is out of breath.”