Random Walk Part 2

I am done with the book, and I must say the author is pretty pessimistic about stock picking. Earlier I mentioned that he is totally against and biased towards technical analysis. I then assumed that he thus belongs to the fundamental analysis camp.

But no! Turns out, fundamental analysis doesn't work out well either, and fails when compared with the control of an index fund. This man is a firm believer of the efficient market theory (the book name is REALLY apt) and always has something to say regarding a criticism of the theory.

So Malkiel says we should all just buy into index funds, for they offer diversification that retails investors usually can't afford. This form of passive investing also reduces all the unnecessary transaction fees, taxes, and other miscellaneous deductions that eat away at your earnings.

Initially, I had nothing against just buying the STI ETF and slowly accumulating it. But upon thinking a little more, I feel that I should be more adventurous, given my risk profile. I'm young, with no dependents, and sufficient income to invest with. I can afford to lose the money, and I can afford to hold the stocks as I have no need for the money at this point. Thus I should take more risk, and seek higher returns. And of course, Malkiel's conviction that it's so impossible to beat the market makes me want to try it all the more. Challenge accepted!

But of course, I still have a long way to go before picking my own stocks. I have to read up more (Bloomberg, Fortune, Forbes, Wall Street Journal, BusinessWeek, New York Times) and also read about value investing. And I would still want to buy into ETF, but once I am more confident I would set aside an amount for individual, small-cap stocks.

The book also got me thinking about the US market. It is where the world trades, where trade volumes are so much higher, where potential for growth is huge. But this would expose me to exchange-related risks, and also the presence of greater taxation. Still, it's something to KIV.

A Random Walk also introduces the basics of risk and beta, which I felt was a good starting point for a clueless investor. At least I won't be so lost when I see people discussing about betas and alphas. Next up is to understand deltas.

It's only been a few days, but my grand plan has been nudged in a slightly different direction. There's nothing wrong; this is the time to try something different, and learn along the way.