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Random Walk Theory

The Random Walk Theory basically states that choosing stocks randomly has just as good a potential return as any other method of choosing stocks.

Expanded Definition

Although Random Walk Theory is an important part of investment theory, it is best applied in the sense that the next short term movement of price in any investment is as likely to be up as down. But to reduce this concept to the idea that you are better off to select investments by throwing darts at a stock list is an over simplification.

Fundamentalist investors believe that in the long term the value of a share of stock is determined by the prospects for future earnings. Well managed companies that lead their industries are likely to continue doing better than their competitors.

Hence in spite of Random Walk Theory, it is still a good idea to research a stock before you invest.

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