A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

Stay Cool to Hot Tips.
We’ve all heard the stories. Your
uncle Gene knows about a diamond mine in Zaire that’s a
guaranteed winner. Please remember that a mine is usually a
hole in the ground with a liar standing in front of it. Your
cousin’s sister-in-law Gertrude was told confidentially about
an undiscovered little biotech company. “It’s a screaming
bargain. It’s selling at only a dollar a share, and they’re ready
to announce a cure for cancer. Think, for $2,000 you can buy
2,000 shares.” Tips come at you from all fronts—friends,
relatives, the telephone, even the Internet. Don’t go there.
Steer clear of any hot tips. They are overwhelmingly likely to
be the poorest investments of your life. And remember:
Never buy anything from someone who is out of breath.
Distrust Foolproof Schemes.
You will be told by amateurs
and professionals alike that schemes exist to pick the best

---

fund managers and to keep you out of the market when prices
are falling. The sad fact is that it can’t be done. Sure, there are
portfolio strategies that in hindsight produced above-average
returns, but they all self-destruct over time. There are even
market-timing strategies that have been successful for years
and even decades. In the long run, though, I agree with
Bernard Baruch, a legendary investor of the early twentieth
century, who said, “Market timing can only be accomplished
by liars.” And Jack Bogle, a legend of the late twentieth
century, has remarked, “I do not know of anybody who has
done it [market timing] successfully and consistently.”
Investors should also never forget the age-old maxim “If
something is too good to be true, it is too good to be true.”
Heeding this maxim could have saved investors from falling
prey to the largest Ponzi scheme ever: the Bernard L. Madoff
fraud uncovered in 2008, in which $50 billion was said to
have been lost. The real con in the Madoff affair is that
people fell for the myth that Madoff could consistently earn
between 10 and 12 percent a year for investors in his fund.
The “genius” of the fraud was that Madoff offered what
seemed to be a modest and safe return. Had he offered a 50
percent return, people might well have been skeptical of such

---

pie-in-the-sky promises. But consistent returns of 10 to 12
percent per year seemed well within the realm of possibility.
In fact, however, earning such returns year after year in the
stock market (or in any other market) is not remotely
possible, and such claims should have been a dead giveaway.
The U.S. stock market may have averaged over 9 percent a
year over long periods of time, but only with tremendous
volatility, including years when investors have lost as much
as 40 percent of their capital. The only way Madoff could
report such a performance was by cooking the books. And
don’t count on the regulators to protect you from such
fraudulent schemes. The SEC was warned that Madoff’s
results were impossible, but the agency failed to act. Your
only protection is to realize that anything that seems too
good to be true undoubtedly is untrue.