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Finance: What is a Random Walk hypothesis? 65 Views
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Description:
The random walk hypothesis is a financial theory that suggests the market is unpredictable, and can't be beaten. (Cough-cough-B.S.)
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Transcript
- 00:00
Finance allah shmoop What is the random walk hypothesis The
- 00:08
market is unbeatable Trying to beat it by buying this
- 00:12
stock selling that one Good luck You're this guy you
- 00:16
get free real estate wherever you stop so well you
- 00:19
might end up here Yep Yukon gold Well you might
Full Transcript
- 00:23
end up here yet but alligators swamp where Your lunch
- 00:27
But if you take enough random walks and even if
- 00:30
you find gold or ah silicon valley real estate well
- 00:33
eventually you'll end up here That's the random walk theory
- 00:38
Itjust claims that the market is unpredictable You can't beat
- 00:42
it pretty much Just like the efficient market theory They're
- 00:46
kissing cousins Well given that quite a few investors have
- 00:49
beaten the market over time And a few like this
- 00:52
guy have crushed it Well who could have come up
- 00:56
with such an idea And like when Well it'd be
- 00:59
the french of course in eighteen Sixty three This guy
- 01:03
julian you know well And over time a bunch of
- 01:06
other eggheads tried to mathematically prove that the market was
- 01:10
unbeatable And in fact what they proved is for average
- 01:13
talent people it probably is Their efforts largely revolved around
- 01:17
missing the notion that buying a concentrated portfolio of a
- 01:21
dozen or so for high quality companies and not buying
- 01:25
into crappy industries like airlines or paper And paul for
- 01:28
anything highly unionized made it a pretty decent bet that
- 01:32
an individual investor over long periods of time could in
- 01:35
fact beat the market And if you think about it
- 01:38
you got the s and p five hundred If you
- 01:39
could just get rid of the worst two or three
- 01:42
hundred bottom cos down there Well the top two hundred
- 01:45
probably do pretty well and you beat the market nicely
- 01:47
and get rich and you go get the by portia's
- 01:49
in your old age Yeah those investors Well those investors
- 01:52
who beat the market They're rich The professors with the
- 01:55
misguided not street smart math but who know a lot 00:01:59.663 --> [endTime] of vocabulary words Yet their professors
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