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on June 1, 2000
If you're looking for a get-rich-quick scheme, this is not it. Dr. Edelson is currently Chief Economist for the NASD and was a Harvard finance professor when he published this book. In it he presents a variation of the well-regarded dollar cost averaging method and provides statistical evidence to suggest a 1% annual return advantage over DCA. A key difference is that it will, when valuations are high, employ sales. I think the hidden jewel in this book, though, is his technique for answering the crucial and reoccurring question, "Am I investing enough to meet my goals?" As the cornerstone of all my investments (401K, IRA, and brokerage accts) for several years, these methods have given me peace of mind and solid results. Requires no more than high school math skills, access to a spreadsheet, and as little as 30 minutes every 3-4 months. The noted finance analyst William Bernstein is also a big fan and provides additional perspective on his web site, Efficient Frontier.
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on June 1, 2002
I bought a copy of this book from the author about 6 years ago and have found it to be the most useful investment manual I have yet discovered. It played an important role in planning for an early retirement, and I continue to use it in maintaing my retirement portfolio. Two chapters will appeal to an investor at almost any level of sophistication--one dealing with a program of dollar cost averaging adjusted for growth in market values, and one outling a system of "value averaging." The first helps investors to keep their contributions on track to meet their investment goals, and the second provides a rational basis for investors to sell shares, if they are so inclined, when the market departs significantly from a projected "value path." Both programs can be adjusted periodically to reflect changed assumptions about probable market returns.
I hardly know how to praise this book highly enough. My own mathematical skills are so poor that I periodically re-read the central chapters to remind myself of the logic I am following. But Edleson helpfully supplies some step-by-step examples of spreadsheet programs that will fully deploy the formulas he explains. This is a first rate book that deserves to be back in print at a reasonable price. But even at [the price], it's worth it.
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on October 7, 2011
Value Averaging is a way to buy more when market goes low and buy less or even sell when market goes high which is the way it's supposed to be in financial markets. Although I find this approach makes sense and easy to apply, but after did many back testings with various securities, I've found 2 issues which make me reluctant to use this approach.

First, in the long term bull market like in 1990-2000, you may find yourself underinvested and have too much money staying on the sideline because of the nature of the strategy which is to buy less or sell shares when market gets higher. In this kind of market, VA will most likely underperform DCA since it has less number of shares to ride the uptrend due to the fact that some of the shares were forced to be sold along the path (Not to mention dividend opportunity lost by selling the shares). Tried to test VA with a strong bull market like gold and found VA was way underperformed DCA. (Nothing is like DCA'ing on stock like McDonald for decades. The return is just so huge!)

Second, when your position is large and then stumble into strong bear market just like in year 2000 and 2008, you're likely to quickly run out of your buffer money you've been accumulating during the bull market. VA forces you to prematurely throw your buffer money to the bad market long before it hits the bottom and will you have extra money to cover the rest of the shortfall? (something like 20k/month or even more). If you don't, I guarantee the result will turn out worse than what you expect.

I wouldn't say this is good or bad strategy since there's pros and cons in every investing strategy. One should do his own homework before choosing strategy he's comfortable with.
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on November 1, 2006
This book should be of intense interest to followers of Robert Lichello's "AIM" (Advanced Investment Management), "Twinvest", and "Synchrovest" dollar-cost averaging methods from 2 generations ago, but Lichello and Prof. Edleson seem to have been unaware of each other's work (understandable given the lack of an internet at the time; their books lived on different sides of the bookstore aisles, "academic" and "popular" works) and no cross-pollinization took place. In any event, Value Averaging is a graduate-level discussion of all the issues about dollar-cost averaging that the AIM students have been struggling toward.

Value Averaging can be tough going for anybody without solid undergraduate math skills, but is deliberately constructed to be utilized by anybody trained in algebra, so my suggestion would be to read through the narrations for the concepts and then go back to the chapters covering the methods you think you would like to use to attack the math. I would suggest not bothering to construct the Excel simulator unless you really think you are going to get different results than a Harvard professor and former chief economist at NASDAQ did in hundreds of tries.

Several chapters are of universal value to practical students of the stock market: a modern recalculation of performance and volatility for the market for the whole historical period of 1926-2006 is given (each generation needs this exercise to renew the debates about what type of investing produces the best yields), universal volatility ranges for the whole market are derived (a simple single range which can save you countless dollars of subscriptions to simulation softwares), and instructions are given for how to construct simulations in Microsoft Excel (most of the new content in the 2006 paperback edition describes how to translate the original spreadsheeting instructions into excel). This little book is packed with permanent value for students of all stock market systems.

Lichello's AIM investors must have this book if they are to take their ideas to the next level, and Prof. Edleson may find himself inheriting the mantle of a movement he may have been wholly unaware of before republishing his method.
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on January 21, 2007
Michael E. Edleson's updated book is well worth the investment. His well researched and documented Value Averaging strategy can be implemented by anyone with access to a computer and the will to follow through. Mr. Edleson also provides numerous examples and variations of the basic theory to aid in both understanding and implementation.

In Value Averaging you determine the amount of "Value" you need to add to your investment over time based upon your goal and projected rate of return. You then add money systematically, as required, to ensure you are on track. The "twist" in Value Averaging is that if your investments exceed your target, you remove money to bring your investments back to the target level. This allows you to build a pool of money to compensate for any market corrections while profiting from any bubbles. This twist resulted in a 1% annual performance boost over Dollar Cost Averaging in the case studies.

In addition to providing an effective methodology for implementing Value Averaging, this book provides information on setting your goal(s). This is an important point which is often glossed over in other books. I would limit the amount of downward revisions I allow in the goal over time, but this is a matter for individual assessment and does not detract from the methods value.

The only thing lacking in the book is an effective guide to choosing your investment vehicle(s) (although several mutual funds are mentioned). For this I recommend that you refer to The Four Pillars of Investing by William J. Bernstein (who also wrote the Foreword for this book).
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on November 12, 2010
I like the content of this book and would give it 5 stars, but unfortunately the Kindle edition is plagued not just by the usual hard to read tables and graphs, but also lack of hyperlinks to the footnotes and tables.

This book has lots of references to footnotes and tables and graphs, and without clickable links it's very awkward to refer to these and get back to your text.

I recommend just getting the hard copy of this book.
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on May 29, 2012
Edleson's investing approach allows you to actually sell holdings when they are high and buy more of them when they are low. This is a variant of the venerable dollar-cost averaging, except here, when earnings grow faster than your target rate, you take some money off the table, putting it back in play when prices come back down to earth (or lower). Problem: he urges you to think of contributions and capital appreciation together, and to increase your portfolio year to year at some target rate (say, 10%). How is this possible in a down market where you may have to a) contribute a portion of your salary, and b) contribute enough additional money to account for a fall in the value of your portfolio? I have no earthly idea, unless you "sandbag" in the early years to give yourself more room as time marches on. The problem is that while you may earn a better percentage that way on the money actually invested, you may end up with less total money (since you weren't fully invested for years). Still, plenty to think about here.
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on November 26, 2007
I have been utilizing the value averaging approach for about 3 years now, and am impressed with the ideas behind it. Before buying the book, I was very curious about how relevant it would be for a young accumulator like myself. I had the impression that it was a strategy geared towards people that had a lump sum to invest. I also wondered whether it was relevant for those who have already developed a well-diversified portfolio.

I found that this book is extremely useful for those that are accumulating as it helps you develop a value path that includes periodic investing. It also makes adjustments for expected growth of contributions (as your wages hopefully increase throughout your career).

As far as the second question I had: I initially believed that this value averaging approach needed to be performed on specific funds in isolation. For instance, I thought that I would need to set up separate paths for each of my funds. However, I found that the value averaging approach can be used towards the entire portfolio as a whole. The first step is to develop a portfolio with a suitable asset allocation. Then you feed money into the portfolio according to the value path. This effectively creates two layers of risk-management:
- First, you manage your risks by making sure the portfolio itself is well balanced between asset classes.
- Second, you manage your risks by adjusting the amount of money you feed into the portfolio based upon its value path.

It is important to understand the reasonings behind value averaging. For me, the use of value averaging has two important objectives:
- The first objective is a behavioral one. It allows risk averse investors like myself to find a systematic way to put money into the volatile financial markets. Because behavioral issues have a major impact on returns, I believe that this is a very important objective.
- The second objective is to dynamically adjust your asset allocation to better reflect an investor's NEED to take risk. The maximum risk you should take should be defined by your risk tolerance, and this is determined by your asset allocation (i.e. when you are feeding money into your portfolio, the money still needs to be going into the right funds to maintain balance in your desired asset allocation). However, when you are exceeding your goals, by going beyond your value path, the value averaging technique actually forces you to put more money into riskless securities (the "side" fund, which is usually a money market fund). This has the effect of temporarily reducing your equity allocation. This coincides with the idea that when you are exceeding your goals, you can afford to take less risk. I find this to be superior to the static asset allocation technique, as I do not believe in taking unnecessary risks if you are on a path to reach your goal.

I am very impressed with Edleson's ideas in this book. I think it will be very useful for any investor that has experienced anxiety putting money into the market. I give it an enthusiastic 5 stars.
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on March 5, 2008
While I believe the concepts in this book would work to enhance returns, (certainly the data shown in the book indicates that it does work), I think it would be hard to actually pull this off.

With conventional dollar cost averaging, you invest a pre-set amount of money (say $100 a month) on a regular basis, an agreement you set up with a mutual fund company in advance. With the Value Averaging approach, you are supposed to invest an amount that will get you a specific amount of money each month, say $100 the first month, $200 the second, $300 the third, and so on. If the market has gone up, you would need to invest less (or perhaps nothing at all, or even have to sell), if the market is down, you would need to invest more. This would likely amount to odd amounts of money invested each month. Certainly, it would help to have an accompanying cash account to pull fund from that is held through the same provided as the fund(s) being invested in, which the author recommends. In prolonged bear market, increasing amounts of money would need to be invested, perhaps eventually more than the investor could afford. In addition, you are supposed to gradually increase your monthly investment as your portfolio grows so the new money coming in continues to be meaningful. The author explains how to do this.

It certainly would take some effort to determine what to do each month, which is vast contrast to the simplicity of traditional dollar cost averaging, which is automatic. In other words, a very good concept, but it would be difficult to make it work in the real world. If you are willing to accept the extra effort involved, and could find a mutual fund company willing to accept odd amounts of money, this book could enhance your investing returns.
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on December 26, 2007
Simply put, this book talks about how to continuously (and systematically) keep investing money to reach your end goal. After reading this book I've become a huge fan of value averaging over DCA, primarily because of the following deficiencies with DCA:

1) DCA never tells you went to sell (aka: rebalance your portfolio). For that you need to make a market timing decision or pick a random date to do it (suboptimal). If there was a mechanical way of saying, its time to sell, which was optimal, that would be good.

2) If you invest $100/month in asset A; the $100 you invest in (month 1, year 1) != the $100 you invest in (month 12, year 10), because of inflation and the fact that over the long run the asset A has a non-zero expected return (which is the reason you are investing in it in the first place!)

3) During severe market corrections. Think 1987 -23% style corrections, DCA will let you buy more shares for the fixed amount but makes no mechanical suggestion to actually buy a lot more shares

In sum, VA is the following: It is a formula based investing strategy like DCA but it tells you when to sell (Think rebalancing). Here you make the value of the fund that you own go up every month and not the actual market price. Lets take a simplistic form of VA: Say you contribute $100 (=contribution amount C) every month to fund X. In month 1 the NAV was $1 and you bought 100 shares. In month 2 you want the value of your fund to go to $200, but it turns out the market price of what you own is now $127, then you contribute only $73 in month 2. In month 3 the fund tanks and value has gone to $150, then you need to put in $150 to keep your value in line to $300. If in month 4 the fund goes crazy and becomes $700 and your target was to get it to $400 you sell $300. No other mechanical strategy tells you when to sell.

I strongly recommend fellow DCA-ers to pick up this book!
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