{"id":556,"date":"2025-12-19T14:00:00","date_gmt":"2025-12-19T14:00:00","guid":{"rendered":"https:\/\/www.tejwin.com\/en\/insights\/burton-g-malkiels-rules-for-successful-stock-selection\/"},"modified":"2026-08-20T15:23:20","modified_gmt":"2026-08-20T15:23:20","slug":"burton-g-malkiels-rules-for-successful-stock-selection","status":"publish","type":"insight","link":"https:\/\/www.tejwin.com\/en\/insights\/burton-g-malkiels-rules-for-successful-stock-selection\/","title":{"rendered":"Burton G. Malkiel\u2019s Rules for Successful Stock Selection"},"content":{"rendered":"
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Photo by Tingey Injury Law Firm<\/a> on Unsplash<\/a><\/figcaption><\/figure>\n

From “Random Walk” to “Rational Stock Picking”: The Investment Philosophy of Burton G. Malkiel<\/strong><\/span><\/h2>\n

Burton G. Malkiel has been one of the most influential economists since the 1970s. In his 1973 classic, A Random Walk Down Wall Street<\/em>, he proposed the famous “Random Walk Theory,” arguing that markets are efficient most of the time and strongly advising the public to prioritize low-cost index investing.<\/p>\n

However, Malkiel also recognizes that markets are not flawless. For investors seeking to outperform the market, he offers a “survival guide.” He contends that investors should not blindly follow technical analysis but should instead rationally combine the “Firm-Foundation Theory” (intrinsic value based on fundamentals) with the “Castle-in-the-Air Theory” (psychology of crowd expectations) to identify targets with growth potential and reasonable valuations.<\/p>\n

The core of his strategy is not predicting short-term market trends, but rather using disciplined and verifiable criteria to screen for companies whose “earnings have growth potential, yet whose valuations have not been fully reflected by the market,” thereby countering random market volatility through long-term investing.<\/p>\n

This research utilizes the TEJ Quantitative Database to precisely adapt this master’s framework\u2014originating from the 20th-century U.S. stock market\u2014to the modern Taiwan stock market. Through high-quality data backtesting, we will verify whether this “rational stock picking” strategy can still generate alpha in Taiwan and demonstrate the practical value of data-driven decision-making in risk management and return enhancement.<\/p>\n

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\ud83d\udcca Eliminate Backtest Bias Recreate real-world trading with quantitative data. <\/strong><\/p>\n<\/blockquote>\n

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\ud83d\udc49 Explore TEJ’s Quantitative Database<\/strong><\/strong><\/strong><\/a><\/div>\n<\/div>\n

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Quantitative Strategy for the Master’s Rules in the Taiwan Stock Market<\/strong><\/span><\/h2>\n

To translate Malkiel’s philosophy of “High Quality, Low Valuation” into actionable quantitative logic, we have defined the following entry and exit criteria:<\/p>\n

Burton G. Malkiel\u2019s Selection Criteria<\/strong><\/span><\/h3>\n

Stock Selection Rules:<\/strong><\/span><\/h4>\n
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  • Stable Growth Characteristics:<\/strong> Over the past four years, the Revenue Growth Rate (TTM)<\/strong> must have outperformed the industry average for at least two years, and the Net Profit After Tax (NPAT) Growth Rate<\/strong> must have outperformed the industry average for at least three years.<\/li>\n
  • Valuation Screening:<\/strong> Companies meeting the above growth criteria are ranked by their Price-to-Earnings Ratio (PER)<\/strong> from lowest to highest. The top 30 stocks are selected for the investment portfolio.<\/li>\n
  • Scale Restrictions:<\/strong> Industries with fewer than 40 constituent companies are excluded to ensure the statistical representativeness of the industry average.<\/li>\n<\/ul>\n

    Data Source and Parameter Settings<\/strong>:<\/span><\/h4>\n

    All data for this study is sourced from the TEJ<\/strong> database, with standardization applied to ensure consistency across multiple years.<\/p>\n