B. Malkiel promotes “The Get Rich Slowly but Surely” method that advises investors to stay even, meaning, investments must secure a rate of return equal to inflation. Ideally, most investors would want holdings that have rate of return higher than inflation. Rate of Return > Inflation.

C. Firm-Foundation Theory states that assets rely on their present conditions and future prospects in order to establish an intrinsic value. The prospective dividends are then factored into the stock’s market price; hence, it’s intrinsic value rises/falls.

D. Castle-in-the-Air Theory is one that focuses on the dreams and wants of masses. For example, the Tulip Bulb Craze was a classic example of a self-fulfilling prophecy. The prices of the bulbs skyrocketed because the buyers made them by way of DEMAND. There were not enough bulbs to go a

E. Risk determines the level of return.

round and those individuals lucky enough to have them doubled their equity in tulip bulb holdings. However, the bubble burst when the price of bulbs got to high holders wanted to sell but to their dismay, there were no buyers—bulb prices then plummeted. Res tantum valet quantum vendi postest—A thing is worth only what somelse will pay for it. Similar lessons are depicted in The South Sea Bubble and The Florida Real Estate Craze.

B. During the 1960’s there was a new-issue craze and at the bottom of it was the tronics suffix. Companies that had nothing to do with the electronics industry were adding tronics to their roster and going public. Similar themes can be found in the biotechnology/internet offerings of the 80’s and 90’s. Simply add a com, tech, net, to your name or make an announcement regarding a potential anything and they will buy! Many of these companies have yet to turn a profit.

D. Malkiel demonstrates the Random Walk theory by using a coin to determine the future of a stock. If the toss was a head the stock went up ½ point and if the toss was tail the stock then went down ½ point. This experiment displays a pattern (similar to any stock) and the chartist is put to shame again. Similar experiments have been done by throwing darts at stock indices and produced above average returns

F. “Technical methods cannot be used to make useful investment strategies. This is the fundamental conclusion of the random-walk theory.”

G. Modern Portfolio Theory advocates holdings in both foreign and domestic stocks al

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