Chapter 4 -The Explosive Bubbles of the Early 2000s is about irrational behavior and greediness of investors the leads to expand the bubble but market is very efficient and eventually it corrects itself. Boom and bust is common when new technology comes but market always corrects any irrationality itself. Malkiel suggest that investor should invest in such companies that have ability to make and sustain profit. The most interesting fact for me was how only changing the name of the company to dot-com or dot-net affected the price of stocks in the market. Companies that changed their names to include some Web orientation enjoyed a 125% greater increase in price during 10 day period than others. This shows us how reckless and irrational investors were at the time and how blindly they follow the flow to get rich faster.
Given that, chapter 14- A Life-Cycle guide to Investing is basically a detailed guide on how to invest for yourself. As it suggest risk and return are related, it depends on the time how long you invest in stock and bonds. Stocks and bonds become less risky if investors hold it down for longer period. Thus, age becomes very critical element in determining the allocation of your assets. Malkiel advise that young people should invest in stocks and should have aggressive portfolio. On the other hand older people who are hoping to replace their income to portfolio return should invest in bonds and stay away from risky investment. Malkiel believes that it is a good idea for older people to invest in retirement funds. Malkiel suggest that dollar cost averaging can be useful. If you invest fixed amount of stock and bonds for long period regularly then investors will be better off because investor will buy more share when cheap and fewer when expensive. Although, investors should have courage to buy stocks and bonds even if it is not performing