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Title: Yes, You Can Time the Market! by Ben Stein, Phil DeMuth ISBN: 0471430161 Publisher: John Wiley & Sons Pub. Date: 04 April, 2003 Format: Hardcover Volumes: 1 List Price(USD): $24.95 |
Average Customer Rating: 3.71
Rating: 4
Summary: Good Graphic Use of Statistical Data
Comment: 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.
Rating: 5
Summary: Yes, You Can Time the Market!
Comment: This exceptional book is a must-own for anyone who is serious about investing. I would still give the book 5 stars if all it did was prove its thesis in a highly readable fashion that, indeed, the market can be timed. Or, if all it did was show you why it's not smart to put your money into index funds or to buy stocks willy-nilly at any time of year. The book does all of that -- i.e., tell you why and how the market can be timed and prove it in succinct clear prose -- but it does more: while Stein and DeMuth guide you effortlessly through the trees, you feel like you're seeing the forest (and you are). You'll come away from this book knowing how and why to invest your money today, while understanding the entire market from the beginning of the 20th Century. I can only think that Ben Stein and Phil DeMuth had a large staff of folks to compile a colossal amount of information -- essential information for any serious investor -- and then the two of them distilled it all down and made it easy to consume. As I said, this information alone would make the book worth 5 stars (and indeed makes it a steal at its current price), but it's worthy of 5 stars "plus" because of the presentation. A few weeks ago, The Wall Street Journal reviewed four new books on investing, this one being one of them. Of the four, the Journal liked this book best. It's really a great piece of work.
Rating: 3
Summary: A systematic way to stay cool-headed, but with big flaws
Comment: The stupendous collapse of the NASDAQ is still fresh in many people's minds. This book offers a way to systematically avoid such euphoria in the future.
Simply put, they advocate buying only when key indicators (such as price to earnings or price to book ratios) fall below their 15-year moving average. When such indicators are higher than their 15-year moving average, stay on the sidelines with Treasuries. Ample evidence is supplied to show how this approach would have netted a hypothetical investor much more than conventional dollar-cost-averaging over the past 100 years.
However, some big flaws lurk in the margins that are not addressed. By utilizing a 15-year moving average, they have effectively reduced the number of unique supportive data samples to 7. There are only seven 15-year windows within their 100 year research period. It is true that they utilize a moving average, thus generating an infinite number of 15-year averages, but the point is that the 15-year average of the years 1970-1984 is not fundamentally independent from the 15-year average of the years 1971-1985 because they share 14 years worth of data. Only the windows 1945-1969 and 1970-1984 are actually unique 15-year data windows. So the question is, do you trust an experiment based on only 7 data points?
The other larger and more substantial flaw is that the strategy proposed by the authors is stained by the same flaw as every other simple and mechanical investment strategy: it uses a strategy perfected through data mining. That is, their ultimate strategy recommendation was selected from a field of nominated strategies and the assumption is made that what worked best in the past will work for the future. This is a classic academic's assumption flaw that has been repeatedly highlighted by the failure of other back-tested strategies such as the once popular "Dogs of the Dow" strategy. Many simple mechanical investment strategies have been invented over the decades and none has ever stood the test of time. I do not see a reason why this strategy will be different.
That said, this book is useful for the nuggets of healthy skepticism that everyone should adopt towards any investing endeavor.
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Title: How to Ruin Your Life by Ben Stein ISBN: 1561709743 Publisher: Hay House Pub. Date: September, 2002 List Price(USD): $12.95 |
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Title: A Mathematician Plays the Stock Market by John Allen Paulos ISBN: 0465054803 Publisher: Basic Books Pub. Date: 13 May, 2003 List Price(USD): $25.00 |
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Title: Ahead of the Market : The Zacks Method for Spotting Stocks Early -- In Any Economy by Mitch Zacks, Mitchel Zacks ISBN: 0060099682 Publisher: HarperBusiness Pub. Date: 18 March, 2003 List Price(USD): $26.95 |
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Title: Tomorrow's Gold: Asia's Age of Discovery by Marc Faber ISBN: 9628606727 Publisher: CLSA Pub. Date: 12 November, 2002 List Price(USD): $35.95 |
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Title: Adventure Capitalist: The Ultimate Road Trip by Jim Rogers ISBN: 0375509127 Publisher: Random House Pub. Date: 13 May, 2003 List Price(USD): $26.95 |
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