Burton Malkiel's classic A Random Walk Down Wall Street is being reissued in a post-credit crunch, financial crisis edition this month. It will be interesting to see his response to the post-crisis critique of financial economics, and especially of course the (hiss, boo) Efficient Market Hypothesis. The book's title refers, of course, to the original finding that active selection of stocks by professional investors delivered returns no better than those generated by investing according to the toss of a coin (a random walk).

That finding has since been successfully challenged by Andrew Lo and Craig MacKinlay in their A Non-Random Walk Down Wall Street. They have developed techniques for finding the predictable elements of stockmarket movements. But despite this, one empirical regularity remains true: professional investors do not outperform the market (and still charge retail investors high fees). Nassim Taleb has caught the popular imagination with his blasts against stockmarket professionals in The Black Swan and Fooled by Randomness. He shows that pure luck can amply explain seemingly star performances on Wall Street. But the father of the Efficient Market Hypothesis, Eugene Fama, has also recently confirmed the failure of investment professionals to add value. One can only conclude that too few professionals have bothered to read Lo and MacKinlay.

There's another interesting perspective on stockmarket patterns, and that's econophysics, which describes price moves using non-linear mathematics to spot bubbles building over a long period. Didier Sornette's Why Stockmarkets Crash: Critical Events in Complex Financial Systems describes this type of work very clearly.

What is the ordinary investor to make of all this? My advice is to buy John Kay's marvellously straightforward and sensible book, The Long and Short of It, and do what he says. That certainly includes not paying high management fees to fund managers.