The monkey that beat the expert

In “A Random Walk Down Wall Street,” Burton Malkiel made a famous provocation: a blindfolded monkey throwing darts at the stock pages could put together a portfolio as good as that of many experts.

His argument is that short-term prices move so unpredictably that trying to get ahead of the market is a losing game once fees are taken out. Studies comparing actively managed funds with their indexes have pointed the same way for decades: over the long run, the vast majority fail to beat them.

Malkiel’s conclusion isn’t to give up, but to simplify: buy the whole market with cheap index funds, diversify and let time do the boring work. In finance, boredom trades at a premium.