Summary book “A Random Walk
Down Wall Street
International
Business
Parttime
Year 4
Corporate Finance
,Table of Contents:
1. FIRM FOUNDATIONS AND CASTLES IN THE AIR..................................................................................2
2. THE MADNESS OF CROWDS................................................................................................................5
3. SPECULATIVE BUBBLES FROM THE SIXTIES INTO THE NINETIES.........................................................8
4. THE EXPLOSIVE BUBBLES OF THE EARLY 2002..................................................................................10
5. TECHNICAL AND FUNDAMENTAL ANALYSIS.....................................................................................13
6.TECHNICAL ANALYSIS AND THE RANDOM – WALK THEORY..............................................................17
7. HOW GOOD IS FUNDAMENTAL ANALYSIS? THE EFFIECIENT – MARKET HYPOTHESIS......................19
8. A NEW WALKING SHOE: MODERN PORTFOLIO THEORY...................................................................20
9. REAPING REWARD BY INCREASING RISK...........................................................................................21
10. BEHAVIORAL FINANCE....................................................................................................................24
1
, 1. FIRM FOUNDATIONS AND CASTLES IN THE AIR
What is a “random walk”?
A random walk is one in which future steps or directions cannot be
predicted on the basis of past history.
A random walk referring to the stock market:
Short – run changes in stock prices are unpredictable.
Two types of analysis:
Fundamental analysis
Technical analysis.
Three versions of the random – walk theory:
The “weak”
The “semi – strong”
The “strong.”
Investment technology:
Includes the concept beta and smart beta.
The definition of investment:
A method of purchasing assets to gain profit in the form of predictable
long term - income such as:
Dividends
Interest
Rentals.
Two approaches of the “investing theory” regarding asset
valuation:
The firm - foundation theory
The castle – in – the – air theory.
The firm – foundation theory:
This theory argues that each investment instrument has a firm anchor,
which is called the intrinsic value. This value can be predicted by careful
analysis of present conditions and future prospects.
The theory of investment value:
A formula for determining the intrinsic value of stock, based on dividend
income.
Discounting:
Looking at income backwards; money becomes less worth in the future.
For example: €1,00 of today will become €0.95 in the future.
2
Down Wall Street
International
Business
Parttime
Year 4
Corporate Finance
,Table of Contents:
1. FIRM FOUNDATIONS AND CASTLES IN THE AIR..................................................................................2
2. THE MADNESS OF CROWDS................................................................................................................5
3. SPECULATIVE BUBBLES FROM THE SIXTIES INTO THE NINETIES.........................................................8
4. THE EXPLOSIVE BUBBLES OF THE EARLY 2002..................................................................................10
5. TECHNICAL AND FUNDAMENTAL ANALYSIS.....................................................................................13
6.TECHNICAL ANALYSIS AND THE RANDOM – WALK THEORY..............................................................17
7. HOW GOOD IS FUNDAMENTAL ANALYSIS? THE EFFIECIENT – MARKET HYPOTHESIS......................19
8. A NEW WALKING SHOE: MODERN PORTFOLIO THEORY...................................................................20
9. REAPING REWARD BY INCREASING RISK...........................................................................................21
10. BEHAVIORAL FINANCE....................................................................................................................24
1
, 1. FIRM FOUNDATIONS AND CASTLES IN THE AIR
What is a “random walk”?
A random walk is one in which future steps or directions cannot be
predicted on the basis of past history.
A random walk referring to the stock market:
Short – run changes in stock prices are unpredictable.
Two types of analysis:
Fundamental analysis
Technical analysis.
Three versions of the random – walk theory:
The “weak”
The “semi – strong”
The “strong.”
Investment technology:
Includes the concept beta and smart beta.
The definition of investment:
A method of purchasing assets to gain profit in the form of predictable
long term - income such as:
Dividends
Interest
Rentals.
Two approaches of the “investing theory” regarding asset
valuation:
The firm - foundation theory
The castle – in – the – air theory.
The firm – foundation theory:
This theory argues that each investment instrument has a firm anchor,
which is called the intrinsic value. This value can be predicted by careful
analysis of present conditions and future prospects.
The theory of investment value:
A formula for determining the intrinsic value of stock, based on dividend
income.
Discounting:
Looking at income backwards; money becomes less worth in the future.
For example: €1,00 of today will become €0.95 in the future.
2
