Finance: What is a Random Walk hypothesis?

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

00:23

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