Yes, You Can Time the Market!
||List Price: $24.95
Amazon.com Price: $17.47
- Media: Hardcover
Publisher: John Wiley & Sons (04 April, 2003)
- Average Customer Review:
Based on 17 reviews.
Amazon.com Sales Rank: 1,079
Good Graphic Use of Statistical Data
In 1929 an investor owning a basket of stocks representing the S&P 500 Index would have seen a return of 84%...in twenty years. Making the same investment just two years later would have produced an 818% move. Timing is important. Investing for the 'long run' is no excuse for buying stocks when they are expensive. Stein and DeMuth make the case that an investment may be a bargain when its current price is lower than its long-term average. This is simply due to the fact that points of data tend to follow their own laws of gravity and "regress" to long-term averages after periods of sharp out/under performance. Let's define long-term as a fifteen year period. Let's also invest in the market using indexed securities and specifically one key market index, the S&P 500 Index, because of the singular unpredictability of individual stocks.
Here are some conclusions: By almost all historical measure today's stock market is still overvalued. The index average of the S&P 500 and S&P 500 dividend yield appear to be the most reliable indicators of whether the market is over or undervalued. Own bonds and avoid stocks when they are expensive relative to their long-term averages. The always touted benefits of dollar cost averaging, and mechanical portfolio rebalancing to a preconceived percentage allocation, miss the point. Investments can be timed.
The difficulty in all this is that the authors' findings point to the "general direction" of the market over "long periods of time". Investors will need the patience of Job and a steely discipline to be in or out of the market for multi-year periods. Meanwhile, experience shows us that much money is also made and lost in the margins, in the short-term. Using the data, investors would have begun moving out of the market in the mid to late 1980's thus avoiding the sharp break in the market in 1987 and the extended bear market that began in 2000. But investors would have also missed the spectacular blow-off gains in the 1990's. Investors would be smart to use this book as a guide for adjusting their allocation to a variety of asset classes and use long-term trends to temper short-term emotion.
This Is A Book About Value Investing Not Market Timing
Although the book's title leads one to believe that this book is about market timing, it is not. It is basically the buy and hold approach with a few twists. This book will not help the average investor time the market, since buy and sell signals may not occur for years. In the interim their portfolios can get decimated.
The premise of the book and statistical tables provided in the book are all very interesting, and are food for thought. And the writing style is easy to read. But in the end the value to this approach to today's investor is dubious.
The authors use a 15-year moving average with monthly prices of the S&P 500 Index (pg. 27) going back 100 years to generate buy and sell signals. The last buy signal according to this chart was given in late 1984 to early 1985 with the S&P near 325. So investors would have been invested for the last 18 years.
They would have had to sit through the debacle of October 1987, and the drops in 1990, 1994, and the terrible markets during the past three years. The S&P 500 Index peaked at 1527.46 on March 4, 2000, and dropped to 776.76 on October 9, 2002. Thus, investors would still be holding their investments using Stein and DeMuth's approach. As of June 26, 2003 the S&P was at 986. If you looked at their S&P chart with the 15-year moving average, you would see that a sell signal would not occur until the S&P drops below 800. Having such a slow moving average does not allow an investor to take profits at market highs. Moreover, who in the right mind wants to give back a large percentage of the profits.
The authors main thesis is that by using specific fundamental data - metrics - as they call them, either individually or with better results in combination, the investor can be long the market during uptrends and in cash or equivalents during down trends.
They provide statistical information on using fundamental analysis measurements - arrayed from high to low values-to ascertain whether the stock market is overvalued and undervalued. The measurements presented in this book include:
·Tobin's Q (measure of fundamental value)
Each of the measurements mentioned above is discussed in a separate chapter showing the performance of investing with that strategy from 1902 - 2001, when the measurement was at a high and low reading. Performance of each metric is shown for 5-, 10-, 1-5 and 20-year periods from each year. Typcially when the market is undervalued according to that metric, the performance in those just mentioned time periods is superior to the years when the market is designated as overvalued.
Also, included was a comparison of lump-sum investing vs. dollar-cost averaging. Most of these measurements are shown in monthly line chart with a 15-YEAR moving average imposed on them. Interestingly the buy and sell signals - crosses above and below the moving average- of all these measurements are infrequent and occur around the same time.
Overall this book should be of interest to value investors with very long time horizons. It has no value for investors who want to time the market.
Simply The Best Book About Investing Out There
Okay, we all know Ben Stein is a smart guy from Win Ben Stein's Money. What I did not know was that he and apparently his co-author Phil DeMuth know a fantastic amount about investing. He has studied it at Yale and Columbia and been a major commentator about it in Barrons for twenty years. The results are impressive. This is a book about investing for the long term, and it makes total sense. It says not to base your buys on fads and chat rooms or day trading gambles, but to use the basics of earnings, dividends, book value, sales,and long term price trends
to find out whether stocks are cheap or expensive, and what your prospects are for major long term gains based on historical criteria, not on guesswork.
If I had known this stuff I would never have gotten caught in the bursting of the bubble in 2000 and with it, I will never get caught with my pants down again.
If I had to recommend only one book to long term investors, it would be Yes, You Can Time The Market. I think the people who gave it bad reviews must be day traders looking for the next bubble. This book is not for them. Yes, You Can Time The Market is for serious investors who want to make money without taking insane risks. get it and grow rich slowly but surely.
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