Wall Street Legend Burt Malkiel Warns About Market Timing, Meme Stocks

As tech stocks propel the market to record highs, Wall Street legend Burt Malkiel is glad he invested in Nvidia — but only through index funds.

The chipmaker’s share price has surged 12-fold since the start of 2023, supercharging its valuation to an unmatched $4.4 trillion.

Malkiel told Business Insider that he’s happy to have owned the stock as part of the S&P 500, as the idea of investing directly in Nvidia a couple of years ago — when it was trading at more than 100 times forward earnings — “would have scared the hell out of me.”

Malkiel, 92, the chief investor of Wealthfront, a robo-advisor with over $80 billion of client assets, warned against selling stocks with a plan to reinvest once prices retreat from all-time highs.

The retired Princeton economics professor — a renowned advocate of passive investing — told BI the “biggest unforced error” that investors make is trying to time when to sell and when to get back in, adding it is “virtually impossible” to get both right.

Malkiel said he understands people feel pressure to sell when stocks are dropping and they’re watching their life savings shrink.

“Boy, I know the emotions, I know how hard it is,” he said. But cashing out is “invariably the wrong decision,” he added.

Malkiel argued this in a Thursday letter titled “Don’t Miss the Market Rebound,” cowritten with Wealthfront’s investment-research boss, Alex Michalka.

In the letter, Malkiel said that the 10 best days for US stocks in the last 50 years closely followed significant market declines. Five were during the global financial crisis, three were at the height of the COVID-19 pandemic, and one was after Black Monday.

The final and third-best day on the list was April 9 this year, when the S&P rebounded 10% to register its largest one-day gain in 17 years. The index had fallen 12% between April 2 and April 8 in reaction to Donald Trump unveiling his tariff plans.

Emotions, concentration, and memes

Malkiel recommended that people invest part of every paycheck into a diversified index fund, a strategy called “dollar-cost averaging.” This “set it and forget it” approach minimizes advisory and transaction fees, and helps investors avoid making hasty decisions and missing out on returns, he said.

He criticized leveraged ETFs that promise a multiplied return on a stock or index. “These are just sort of pure speculative pieces of paper, and that bothers me,” he said.

Meme stocks, which are having a renaissance, “invariably lead you astray,” Malkiel said. “Like any gambler, you can have some hits and make some money, but over the long run, you’re going to lose money.”

The market’s long-term performance remains “damn hard to beat,” he said, adding that believing you know better is “likely to be a recipe for disaster.”