The document summarizes Burton Malkiel's analysis of attempts in academic literature to disprove the efficient-market hypothesis. Malkiel discusses three common strategies - predicting market direction using momentum, finding undervalued stocks, and targeting high return stocks. However, he argues that most purported strategies fail to account for transaction costs or prove economic significance over long periods, as market corrections and other factors undermine any temporary statistical advantages. While some patterns in returns exist, true opportunities for excess returns are unlikely to be reliably achieved in practice according to Malkiel.

1. A Random Walk Down Wall Street
Author: Burton G. Malkiel
Part III Presenter: Tim Wilson
Book Pages 251-267, Chapter 11 excerpt:

2. Attempts to Disprove the:
Efficient-Market Theory and
Why They Miss

3. Close but Still Miss the Target  
• “Ever mindful that they need theories or strategies to
nail down tenure or bonuses, both academics and
analysts have come up with slightly more accurate
shots aimed at destroying the essential
unpredictability of the stock market.”
–Burton G. Malkiel
• Three Groupings of Published ‘Potshot’ types
1. -Attempts to: nail down the markets direction
2. -Attempts to: purport to find longer +market returns
3. -Attempts to: single out the most profitable stocks

4. -Attempts to: nail down the markets direction
The Trend Is Your Friend (Otherwise Known as Short-Term Momentum)
There is some evidence that
stock price gains are more likely
to be followed by price gains in
the same stock in the following
period according to Lo and
MacKinlay
Additional studies by Terrance
Odean concluded that
momentum investors (e.g. The
Trend Is Your Friend Investors)
realized even lower gains than
buy-and-hold investors
“Anyone who pays transaction
costs is unlikely to find a trading
strategy based on momentum
that will beat a buy-and-hold
strategy”
–Burton G. Malkiel (Malkiel, 252)
“While the stock market may not
be a perfect random walk, it is
important to distinguish
statistical significance from
economic significance.”
–Burton G. Malkiel (Malkiel, 252)

5. -Attempts to: nail down the markets direction
The Dividend Jackpot Approach
High dividend yields do not
predict high returns because:
 1. When dividend yields are high
2. Then Interest Rates tend to be
high and usually
3. the market (usually ) supplies
an additional adequate market
premium because of market
efficiency not because you
choose a high yield stock
(Malkiel, 253-254)

If interest rates are low, then
stock dividends tend to be low
(Malkiel, 255)
“Alternatively, perhaps
practitioners (investors) learn
quickly about any true
predictable pattern and exploit
it to such an extent that it
becomes no longer profitable.”
–Burton G. Malkiel (Malkiel, 252)
Continued:

6. -Attempts to: purport to find longer +market returns
The Initial P/E Predictor (P/E = Price to Earnings Ratio) Predictor
There is some degree of
evidence that stocks with a
low Price to Dividend
Earnings Ratio  when
compared to the Market
Average Price to Dividend
Earnings Ratio may give
you higher rates of return
(Malkiel, 255-256)
According to Chambell and
Shiller over 40% of
inconsistencies in long term
returns can be predicted by the
initial market P/E Predictor
(Malkiel, 255) .
But also consider that:
There have been times when
following The Initial P/E
Predictor has lead to
substantial lower returns
(Malkiel, 255-256)

7. -Attempts to: purport to find longer +market returns
The “Back We Go Again” Strategy
(Otherwise Known as Long-Run Return Reversals)
The “Back We Go Again”
Strategy proposes that stocks
which have preformed badly in
the last three years have the
highest chance of gains in the
next three years.
This cycle of up and down
prices is usually associated
more with interest rates than
with an opportunity to profit
from the stocks increasing in
substantial value.
(Malkiel, 256-259)
”We found that those stocks did
enjoy improved returns in the
next period of time, but they
recovered only to the average
stock-market performance.”
–Burton G. Malkiel
” …one should be very wary of
expecting sure success from
any simple contrarian strategy
(simple predictable formula).”
–Burton G. Malkiel
Continued:

8. -Attempts to: single out the most profitable stocks
The “Smaller is Better” Effect –one of the strongest patterns
That is since 1926
(noticeable pattern)
“Probably one of the strongest
patterns that investigators
have found in stock returns is
the tendency over long periods
of time for small company
stocks to generate larger
returns than those of large
company stocks.”
-Burton G. Malkiel, 259
But ”The higher returns from
smaller companies may simply
be the requisite (required)
reward owed investors for
assuming a greater risk…”
-Burton G. Malkiel, 260
Moreover “Today’s list of
companies include only small
firms that have survived….”
-Burton G. Malkiel, 260

9. -Attempts to: single out the most profitable stocks
The “Value Will Win” Record -Warren Buffett’s favorite theory
“Two find value, investors
should look for stocks with
low price-earning ratios and
low prices relative to their
book values.”
-Burton G. Malkiel, 261
A stocks P/E varies over
time and  don’t forget
usually low P/E’s are
justifiable because they are
usually riskier…
”We also must remember
that the results of published
studies –even those done
over decades –may still be
time-dependent and (one
must) ask whether the
return patterns of academic
studies can actually be
generated with real money.”
-Burton G. Malkiel, 264
Continued:

10. Why Even Close Shots Miss
The Market while not always perfectly efficient, also corrects its self
“Anyone who pays
transaction costs is
unlikely to find a
trading strategy based
on momentum that will
beat a buy-and-hold
strategy”
–Burton G. Malkiel
“Nothing is ever as
clear in prospect (while
it is happening) as it is
in retrospect.”
–Burton G. Malkiel
