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

IMPLICATIONS FOR INVESTORS
The past history of stock prices cannot be used to predict the
future in any meaningful way. Technical strategies are usually
amusing, often comforting, but of no real value. This is the
weak form of the efficient market hypothesis. Technical
theories enrich only the people preparing and marketing the
technical service or the brokerage firms who hire technicians
in the hope that their analyses may help encourage investors
to do more in-and-out trading and thus generate commission
business for the brokerage firm.
Using technical analysis for market timing is especially
dangerous. Because there is a long-term uptrend in the stock
market, it can be very risky to be in cash. An investor who
frequently carries a large cash position to avoid periods of
market decline is very likely to be out of the market during
some periods where it rallies smartly. Professor H. Negat
Seybun of the University of Michigan found that 95 percent
of the significant market gains over a thirty-year period came
on 90 of the roughly 7,500 trading days. If you happened to
miss those 90 days, just over 1 percent of the total, the
generous long-run stock-market returns of the period would
have been wiped out. The point is that market timers risk

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missing the infrequent large sprints that are the big
contributors to performance.
The implications of this analysis are simple. If past prices
contain little or no useful information for the prediction of
future prices, there is no point in following any technical
trading rule for the timing of purchases or sales. A simple
policy of buying and holding will be at least as good as any
technical procedure. Discontinue your subscriptions to
worthless technical services, and eschew brokers who read
charts and are continually recommending trades.
There is another major advantage to a buy-and-hold
strategy. Buying and selling, to the extent that it is profitable
at all, tends to generate capital gains, which are subject to tax.
Buying and holding enables you to postpone or avoid gains
taxes. By following any technical strategy, you are likely to
realize short-term capital gains and pay larger taxes (as well
as paying them sooner) than you would under a buy-and-hold
strategy. Thus, simply buying and holding a diversified
portfolio suited to your objectives will enable you to save on
investment expense, brokerage charges, and taxes; and, at the
same time, to achieve an overall performance record at least as
good as that obtainable using technical methods.

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