Saturday, October 6, 2007

A Random Walk Down Wall Street--Review

A lot of what was taught in Investments class is covered in A Random Walk Down Wall Street by Burton Malkiel. This book was actually a recommended read and I happened to see it in the library yesterday so I grabbed it.

It's such a great investment review for me because I haven't invested in so long. I barely remember strategies such as Dow Theory after graduating. So I'll just summarize it here:

Dow Theory- it is the idea of resistance and support. Once the stock penetrates the resistance or support, it is likely to keep going in that direction for a while.

Relative-Strength system- buys and hold stocks that are outperforming in the recent past (relative strength)

Price-Volume- stock rises on large or increasing volume because of excess interest. (I've used this to buy stocks in the news back in October, e.g. CROX and GM)

Odd-Lot- If there's a increase in odd-lot buys, sell because amateurs are trading the stock and they're most likely wrong.

Filter method- Buy stocks that move up 5% from its low and sell after a 5% drop from its high.

There's more technical analysis methods such as using MA, short interest, and advance/decline ratio as indicators.

By the way, the book says since there are transaction charges, none of these are consistently profitable compared to a buy and hold strategy.

I remember answering a question on semi-strong form market efficiency which says that a stock's price is accurately priced because all public information is incorporated, but I just realized that a big buyer or seller will often spread out his transaction over a relatively long time as to not disturb the stock price, and because of controls. And because of what the stock specialist does. So I just thought of that. But not too many practitioners believe in EMH since they know they can manipulate stock prices.

By the way, I think I should of bought Simon Property Group instead of General Growth Properties.

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