Listen to a Business English Dialogue About Random walk
Tyler: Hey Stella, have you ever heard of the term “random walk” in business and finance?
Stella: No, I haven’t. What does it mean?
Tyler: A “random walk” is a theory that suggests stock prices move randomly and unpredictably over time, making it impossible to consistently predict future price movements.
Stella: So, it’s like saying that the stock market is completely random?
Tyler: Essentially, yes. The random walk theory implies that past price movements and patterns are not reliable indicators of future performance.
Stella: Are there any implications of the random walk theory for investors?
Tyler: Yes, it suggests that trying to time the market or beat the market through stock picking or market timing strategies may not be effective in the long run.
Stella: How does the random walk theory relate to efficient market hypothesis?
Tyler: The random walk theory is closely related to the efficient market hypothesis, which posits that stock prices reflect all available information and are therefore impossible to consistently beat through analysis or research.
Stella: Are there any criticisms of the random walk theory?
Tyler: Some critics argue that while stock prices may appear random in the short term, they may exhibit patterns or trends over longer time horizons.
Stella: Can investors still make money in the stock market if prices follow a random walk?
Tyler: Yes, investors can still achieve returns by diversifying their investments, focusing on long-term goals, and adopting a disciplined approach to investing rather than trying to time the market.
Stella: Thanks for explaining, Tyler. The random walk theory sounds like an important concept for investors to understand.
Tyler: You’re welcome, Stella. It’s a fundamental concept that can help investors make informed decisions and manage their expectations in the stock market.