IS RANDOM WALK DEAD?
FIN Alternatives is reporting that Burton Malkiel is starting a China based hedge fund. The author of A Random Walk Down Wall Street is famous for blasting active portfolio management and equating it to little more than gambling. In addition, Malkiel has been a critic of the hedge fund industry for decades.
Regular readers know I am a harsh critic of the efficient market hypothesis. I disagree with just about everything Malkiel stands for and EMH has taken a serious blow on the back of the financial crisis and market collapse. His foray into the hedge fund business appears to be an admission of failure of an entire life’s work. Even worse, this begs the question – is Malkiel just another case of the greedy Wall Street executive who honestly believes his clients can achieve market equivalent returns with low fee index funds, but nonetheless is attempting to use his fame and influence to charge 2 and 20?
Either way, it’s a near vomit inducing business move and in my opinion nothing more than more of the greed based hypocrisy we see on Wall Street every day.
When I was an MBA student in the mid 80′s, Efficient Market Hypothesis was the dominant idea in finance classes. The fundamental idea is returns on investments are randomly distributed and nobody can beat the market consistently. On the other hand, I have been very fascinated with price movements. I can sit all day in front of a computer watching numbers dancing before my eyes. Price movements are not random. They move in patterns, because human decisions are consciously and subconsciously made in patterns. Being too much dependent on quantitative methods is too primitive.
More money for Malkiel mucking in instead of making principled or theoretical noises from the sidelines.
Random walk in China . . . . what a concept. Why not hang a sign on yourself that says “我是大傻瓜， 扒我的裤子偷走了” (I’m a big fool, steal my my pants.)
President Obama, Bernanke, and Jim Cramer are in a MOVIE about hedge funds called “Stock Shock.” Even though the movie mostly focuses on Sirius XM stock being naked-short-sold to near bankruptcy (5 cents/share), I liked it because it exposes the dark side of Wall Street and reveals some of their secrets. DVD is everywhere but cheaper at http://www.stockshockmovie.com