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Are We In A Random Walk Market?

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Are We In A Random Walk Market?

"A Random Walk Down Wall Street" is an influential stock market and investing related book written by Burton Malkiel, a leading economist, professor and former director of the Vanguard group and trustee of Vanguard Mutual funds.

Malkiel's book created the random walk theory, which argues that prior movements in the stock market cannot be used to predict future moves. Stocks also take a random path, and the odds of a stock going up or down are essentially the same.

An investor who holds the theory true also understands that given the random nature of stocks, it is impossible to outperform the overall market without taking on risk. Also, forget about trying to time the market, or spend hours studying the charts looking for an edge in the form of technical analysis.

Related Link: Cramer's 11 Stocks To Buy During Fed-Fear Selloffs

On Benzinga's PreMarket Prep show Tuesday morning, co-host Dennis Dick offered his take on the current market volatility and how it relates to the concept of a random walk.

Dick quickly pointed out that investors who chased a short market after Friday's market were wrong in their thesis based on Monday's strong rebound. On the other hand, investors chasing a bull market after Monday's session were also wrong based on Tuesday's notable decline.

"I'm calling this the random walk market here," the co-host said.

Dick continued that the current market is "so unpredictable" right now; the random walk theory is "holding a lot of water," as very few investors could have accurately predicted Monday's "buy everything" rally occurred just a single day after a "sell everything" trading session on Friday.

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