Burton Malkiel's A Random Walk Down Wall Street, first published in 1973, popularized this theory, which says that stock prices reflect all the publicly available information about the companies. Stock prices may not be "right," but they're as correct as they possibly can be.
There's no point in trying to beat the market, suggests the theory. Just index it.
Some, including most mutual fund managers, disagree. They feel that they can find mispriced securities, or opportunities where a stock's price does not accurately reflect everything about the company.
We'll explore both sides of the issue in Portfolio 502.
Modern Portfolio Theory >>