| For starters, you can always count on investors to be self-interested. But rational? Not always. Take a look at recent history. How rational were investors 23 years ago when they bid internet and technology stocks to the skies, forgoing sales and earnings for financial metrics like "eyeballs" and "web hits"? How rational were they 15 years ago when they put themselves deeply in hock to flip land, rental properties, vacation homes and condos because "real estate always goes up"? How rational were they when they dumped stocks en masse during the financial crisis of 2008 - with the Dow at 6,500 - and plunked the proceeds into money market funds just as yields reached an all-time low? And how rational were they a few years ago when they bid crypto to the moon? Investors behave rationally most of the time. But it is certainly not the case that all (or even most) investors behave rationally all the time. And that creates opportunity. Here's another flaw in the "random walk" argument. Malkiel mentions that investors incorporate all "public information" into the prices of stocks. But how about nonpublic information? Most investors don't have access to nonpublic information. But that doesn't mean no one has access to it. Some of the best trades I've ever made have resulted from visiting a retailer and asking the manager how regional and national sales are going. Are they supposed to talk about these things? Absolutely not. But do they? Yes, sometimes they do. Gaining a bit of key information by talking to customers, suppliers, competitors and employees can give you an edge. How about the insiders themselves? Officers and directors have access to all manner of material, nonpublic information. That can give them an enormous advantage over ordinary investors when they trade. It's also why Uncle Sam requires them to file a Form 4 with the Securities and Exchange Commission, divulging how many shares they bought, at what price, and on what date, any time they buy or sell their own company's shares. If you watch what the insiders are doing, you won't access the nonpublic information that they possess. But you'll certainly know whether they think their companies' shares are overvalued or undervalued. And that's crucial information. In short, Malkiel is right that it's difficult to beat the market. But futile to try? Not only have men like Warren Buffett and Peter Lynch disproved that line of thinking, but so has our own Oxford Trading Portfolio in The Oxford Communiqué. We have beaten the S&P 500 by a wide margin for more than 20 years now. But while Malkiel is mistaken on some points, he is absolutely right on others. For example, he believes it is a fool's errand to try to time the market. I agree. It's easy to look back and see what you should have done. But when you look forward it's always a blank slate. At the beginning of the year, for instance, many analysts were bearish due to high inflation and rising interest rates. Yet the S&P 500 rose 15% in the first six months of the year. And the Nasdaq more than doubled that return, turning in its best first-half performance since 1983. Sitting on the sidelines - timing the market, in other words - cost many investors dearly. Malkiel insists that an index fund will outperform the vast majority of actively managed funds over time. He's right. Studies show that 3 out of 4 actively managed funds underperform their benchmarks each year. Over periods of a decade or more, 95% of them underperform. In short, I agree with Malkiel far more than I disagree with him. His research - and similar work by John Bogle, Jeremy Siegel and others - has had a profound impact on the development of my own investment philosophy. In fact, our Gone Fishin' Portfolio is the very embodiment of much of what he espouses in A Random Walk Down Wall Street. Our Oxford Trading Portfolio? That's a different story. It shows that careful analysis and due diligence can lead to market-beating performance. I'd call that a nonrandom success. It's smart to make index funds the foundation of your portfolio. But you can add a potential performance kicker by carefully selecting individual stocks - and sticking to a proven sell discipline to protect your principal and your profits. Good investing, Alex | 
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