I think his book is a bunch of hogwash. How do you explain the several successful traders today? He never provides proof for his assumptions. Anyone else agree?

so who's with me? someone explain why malkiel says that both technical and fundamental analysis is useless even though there are hundreds of successful traders?

he's trying to suggest that technical and fundamental analysis are not holistic ways to making profit. If anything there isn't conclusive proof that technical analysis will guarantee profits. Who's to say which methods work best? I know one trader who goes to India every year to see his Guru who lives in a mountain and has never watched TV for advice on planetary alignments which he translates into trading decisions. Needless to say he has made significant profits based on these techniques. Bull-shit or not... it still works.

It's not complete hogwash but it over simplifies. There's plenty of evidence against a simple random walk, but also plenty that a random walk explains many features reasonably well. But the number of successful traders in no way contradicts a random walk. (As you should have understood from reading the book.) Apart from insider trading and other such scams, if a good strategy (one that ensures better than chance returns) is visible to one, it will in principle also be visible to others (even if they don't look and see at any given moment) so the success of any strategy, if such a good strategy exists at all, will depend on the level of knowledge (and research ability) of other traders -- something which can be expected to vary fcrom trader to trader and year to year. Either way, everyone who profits (whether by good strategy or luck) will be profiting by someone else's loss, so in the absence of a good reason to the contrary, you should expect a roughly similar distribution of successful and unsuccessful traders whatever the underlying logic, if any, of the market.

well, i admit i haven't read the book...but the existence of successful traders is BY NO MEANS a contradiction to market efficiency...Out there, there are market inefficiencies, subjective interpretation of the price signals and fundamental data etc...on the other hand if you believe in heads and shoulders, moon phases, inverse saucepans, fibonacci retractions and other BS this is your problem but I would never trust my money in your hands...

I agree with Fermion that its not complete hogwash, but not right, either. To me, the book (and EMH) provides a useful framework for thinking about the exceptions that generate excess profits. I see four deep flaws in the book:1. Empirical evidence to the contrary: Although many studies of specific TA or FA techniques have found no evidence of profits, studies of traders have found that some people (even individual investors at a retail online broker) do outperform (or underperform) the market consistently. It's not clear what TA or FA methods these people use (although the study did control for insider trading).2. Bad assumptions: The book's arguments are rife with demonstrably false assumptions about market participants. EMH assumes that participants only want to maximize profits and have unbounded rational cognitive skills. Neither is true. First, some people, such as gamblers and fund managers, have other criteria for taking or avoiding trades (e.g., the excitement of risk and retaining their jobs, respectively) that distort their trading. Second, human cognition and psychology contains built-in biases (e.g., loss aversion, anchoring, intransitive preferences, belief in momentum, over confidence) that affect trading.3. Disequilibrium: EMH is an equilibrium argument, but markets are not in equilibrium. That's one reason that trading volumes are far far higher than EMH predicts (that's another empirical falsification of EMH). In fact, some participants (e.g., brokers, information services, and software firms) profit from the churn. Every change in market structure, regulations, or financial innovations provides these participants with new opportunities for demonstrably excess profits.4. Inconsistency: The core problem is that EMH is not internally-consistent. EMH assumes people are rational, but requires people to be irrational in order to create an efficient market. If everyone believed that EMH was true, they would cease to look for excess returns in the market (and thus allow those returns to persist). It's like the old joke about the two economists. One spots a $100 bill on the ground and the other says "Don't pick it up. It's obviously fake because if it was real, then someone would have already taken it."

No. 4 is the Grossman-Steiglitz paradox ...

You forgot 5: Efficiency is not an objectively-defined concept. Any strategy that seems to make excess profits can easily be explained by the Deus Ex Machina of some risk premium "we didn't realize existed before." 6. Efficiency is untestable. Efficiency implies no excess returns, but no excess returns does not imply efficiency.

Another issue that I think it's not fully understood is that markets are not a zero-zum game.Interest rates make it already a profitable game, but let's consider only excess return: equities are extracting value from the whole society, and that will go on to be like this as long as there is capitalism and business opportunities. Beyond that, it's just a model of equilibrium which of course you never reach.Although HF competition will increase complexity for easy money.

Well, try to read "Non-random walk down Wall Street"... Seriously, it is quite a good book.