This is an investment classic: it offers an elementary exposition of financial theory, a potted history of stock market investment fads, and (at the risk of annoying my fund manager friends and fellow strategists) a profitable investment strategy to boot. It is also a good read.

This is the ninth edition – the first was in 1973 – and while it may not be as “completely revised and updated” as the jacket blurb proclaims, there are certainly some useful additions. Most notably, these include a chapter on behavioural finance, where Malkiel translates the theoretical insights into practical advice – don’t trade too often, don’t be afraid to realise a loss, beware the herd. This edition also includes more material on the aftermath of what Malkiel terms the “biggest bubble of all”, the technology boom and bust of 1999-2003. He usefully reminds us that dotcom dottiness was not the sole creation of the analysts: the mainstream media also played a cheerleading role.

Malkiel’s original proposition became famous, and has changed the investment landscape. He argued then and now that “the market prices stocks so efficiently that a blindfolded chimpanzee throwing darts at the Wall Street Journal can select a portfolio that performs as well as those managed by the experts.”

That blindfold is a puzzle – is he suggesting that a visually-unimpaired chimp would actually outperform? – but there is no doubting the power of Malkiel’s hypothesis. It has been a driving force behind the creation and subsequent stellar growth of index-tracking funds, and indeed of one of America’s largest fund management groups. It has yet to be refuted.

Malkiel sets out his case carefully and entertainingly. He reminds us that an “efficient” market is not necessarily one that is always stable, rational or fairly valued – it is simply one in which it is difficult, over the longer-term, and utilising only publicly-available information, to make money (net of trading costs). Along the way, he carefully points out the shortcomings of various techniques used by “the Pros”, including chartist/technical analysis (mostly bonkers) and forecasting fundamentals (tries hard but doomed to fail).

He acknowledges that his vision has fuzzy edges. For example, why doesn’t intra-market efficiency extend as visibly across sectors, or still more obviously across asset classes? Several writers have found evidence of sustained serial correlation at the sector level, for example; and long-run returns to equities seem to have more than compensated for most estimates of risk.

Indeed, Malkiel has recently gone on record as favouring the use of sector and regional Exchange Traded Funds to enhance short-term trading performance – a tactical approach that the previous editions of this book (and most of this edition) have explicitly eschewed. But he does demonstrate (again) how difficult – and rare – it is for actively-managed stock portfolios to consistently outperform their benchmarks. And since it is now very cheap to track those benchmarks passively, this is a rewarding insight – and an egalitarian one, available to the smallest investor.

The spectacular success of Warren Buffet and a small number of other individual investors doesn’t damage Malkiel’s case. Of the countless thousands of money managers out there, somebody had to get lucky. This doesn’t mean that Buffett isn’t a dauntingly-smart cookie. The probability though is that lots of money managers are almost as smart but much less lucky.

Superficially, it looks as if Malkiel’s hypothesis might be tested more severely by hedge fund managers, who do seem collectively to have outperformed the major stock markets in the last decade – and that is after fees that are materially higher even than those of traditional mutual fund managers. But hedge funds’ use of leverage, short-selling and other asset classes means that a careful comparison is difficult, and the outperformance (which must include some survivorship bias) seems anyway to have faded sharply since 2003. I rather suspect that it is about to fade still further.

The book is not without its faults. For non-American readers, the largely US-oriented discussion and terminology may be a little frustrating. For seasoned professionals (not this one!) and academics, the emphasis on readability over rigour may also disappoint.

Nor is Malkiel’s method triumphant everywhere. As noted, there is an unanswered question – the “equity risk premium puzzle” – regarding the wider efficiency of asset markets beyond stock selection. Performance relative to a benchmark may not be the only motivation for selecting a particular equity portfolio: absolute returns may matter more, and there can even be non-financial reasons for selecting stocks or fund managers.

More tellingly, index-tracking itself can occasionally contribute to destabilising feedback loops – the very herd behaviour that Malkiel would have individual investors avoid. Arguably, this effect helped amplify the technology boom and bust. And to what extent are index-tracking funds “free riding” on the information unearthed by active investors? What would corporate governance look like – how much further would CEO pay rise, if you like – in a world in which all investors are passive?

But these are secondary concerns. This is a wise, entertaining and deservedly influential book. In warning against ‘get rich quick’ schemes, and fostering low-cost tracking products, Malkiel has, over the years, made countless savers better off.

Kevin Gardiner

Global Head of Equity Strategy, HSBC