Yes, You Can Time the Market! 1st (first) edition Text Only Paperback – January 1, 2005
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- ASIN : B005FC54KE
- Publisher : Wiley (January 1, 2005)
- Customer Reviews:
Top reviews from the United States
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While the authors say they are using "technical" analysis to illustrate the principles they are espousing they are not really technical analysts in the voodoo sense you will see hyped in the financial media. They are not telling us that we should buy or sell simply because a pattern type appears in a chart. They do use graphs to illustrate their points, they aren't saying that there are points of resistance or breakthroughs or momentum or whatever.
What they do tell us is that there are times when stocks are a good buy and times when they are not a good buy and they give us several methods to consider. There are: 1) Today's price versus the 15 year historical average price. 2) A very helpful and instructive consideration of the P/E ratio that sets aside much of the hype that has been used to try and keep selling overpriced equities. (If P/E is what you want to use, use the discussion in this book rather than anything someone trying to sell you something will tell you.) 3) Dividend Yields (remember dividends?) and why they are important. 4) Fundamental Value where the authors use Tobin's Q for years it is available and other proxies for that when it is not.
It may sound as if this is a very dry book and technical book. It is not. It is well illustrated and written in a very helpful and instructive way with real insight into what those whose jobs depend you selling you on buying equities are trying to do to you.
The "market timing" they are talking about here has NOTHING to do with the market timing of day traders. Their argument is that dollar cost averaging is better for the equities sellers than it is for you. There are indeed times that are better to buy equities than others. Stein and DeMuth offer some tools for better seeing when times are better and when it is worse. They also try to provide reasons why we should discipline ourselves to not buy when the herd of independent minds is in its most heated frenzy as it was in the late 90s.
Here are just two of the many comments that had me saying, "Amen!"
From page 90: "No one knows what future earnings will be. Just because someone is willing to make up a number when asked does not mean it will come true. It is difficult enough trying to get a company's board of directors to tell us what last year's earnings were with any reliability."
From page 110: "In the short run, the stock market is a high school popularity contest where true value is overlooked."
After showing us each of the measures they find compelling they show us how to combine them in ways that augment their value. They also take the time to show us the limits of their method and urge us that misusing what they say here can be lead to disaster. I find this interesting because it is using other methods precisely as prescribed that has lead to disaster for so many.
So, what Stein and DeMuth are basically urging us to do is to stop smoking the weed peddled by those trying to sell equities under all conditions and to do some financial exercises to better understand what we are doing with our hard earned and precious funds that we manage to set aside after our living expenses, taxes, and relatives. Here they have given us a nice guide to generating some financial health.
They also offer general investment cautions beyond their method along with a helpful and short reading list for further study and consideration. They also have a helpful website that provides some free resources to help with the kinds of analysis the book discusses.
All in all I think this book is a much needed call to financial sanity and will help investors a lot more than nearly all of what they get told in the hype of the daily financial media.
Thanks Ben Stein and Phil DeMuth for this very readable guide to better investing.
How often have you heard pundits say "Don't try to time the market" and in the very next sentence they say "make sure you take valuation into account". Contradictory statements.
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.
I was wrong. Simple? Yes. Totally simple. But, let me save you the time. While making a convincing case, they "prove" that only a fool (and I do not mean that with a capital F) would have bought stocks since about 1984. If you believe that, buy this book.
In short ... buy their retirement book. Skip this one.
Top reviews from other countries
In summary this is quite a boring book with a very important message that underlines the essence of successful investing... buy when prices are low.
I'm suspicious of the financial services industry and their message that it's time in the market that matters much more than the time you buy. Reading the marketing material from my investment advisers, it is always the right time to buy. If stocks are high, then I shouldn't miss out on the rising bull market. If stocks have fallen away, I should buy on the dips. If there has been a crash, then I should buy when everyone else is selling.
I started investing in the early eighties and I've only really experienced three crashes:
1) Japan in 1990.
Here I made money but I got out early because it felt too good to be true. I've been tempted back at various times since but this is the market pattern we're all really afraid of. The Nikkei 225 index didn't hit it's bottom until March 2009 and has never come close to recover those values seen in December 1989.
2) The Dot Com Crash in 2000
I was late into this one, suspicious of the hype about the Internet. Then I saw how much money other people were making and I wanted some of it. I dipped my toe into the tech market and effectively had it sliced off. I also incurred major book losses in other investments that turned out to be closet technology funds as the investment managers chased returns.
3) The 2008 Crash
Burnt by the dot coms I found it increasingly difficult to invest my pension and ISA funds from around 2005. Everything looked expensive to me and I either invested I what I thought were conservative funds or held money in cash. What I didn't do was make any significant changes to the existing investments in my ISAs and SIPP. As a result I was proved right and wrong but still incurred massive paper losses. I didn't panic but I didn't have the confidence to invest my cash close to the bottom of the market.
Now I'm waiting for the next crash. It's coming. I can't see any way that the activities of the central banks and their incredibly loose monetary policies can not lead to another and potentially bigger, stock market and property crash.
This book provides statistical evidence that, if you're disciplined and buy when stocks are cheap and avoid buying when stocks are expensive, you should do much better than buying all the time. Of course, that's not what the financial services industry promotes. According to them, you should be using pound cost averaging to buy more when prices are low. They don't tell you that it means you'll buy more when it's expensive.
Pound cost averaging works very nicely in a rising stock market when you gain on everything you buy. The FTSE 100 index started in 1984 and apart from a few blips, the trend rises steadily through to December 1999. Pound cost averaging doesn't look so clever if the time series ends with a crash (as in 2000 or 2008). In fact on 24 February 2014, the index reached its highest level since 1999 but it hasn't exceeded that 14 year old high and that's without allowing for inflation (although there have been dividend payments that help the total return).
The book gives you various ways to assess whether the stock market is offering good value based on a 15 year moving average. Why 15 years? The book admits that it's arbitrary and could have been 10 or 20 years. The authors wanted to provide a long term perspective that would cover the business cycles. It then does a lot of statistical analysis based on buying in a year and holding it for 5, 10 15 and 20 years. Some of the results for 5 years are a bit mixed but by 10 years, the case for market timing is becoming clear and it gets stronger as time increases.
The explanation of all the analytical work is dull. It's hard to talk about summaries of annual statistics and make it interesting. The message is important and reading this book should give you confidence to say No when your investment adviser is telling you to invest when the market is bubbling up.
History shows that mistakes are expensive and in normal markets, take a long time to recover. The FTSE hasn't yet recovered to its 1999 peak despite the policies of the Bank of England. The S&P 500 index in America took seven years to get back to the peak after the 2000 crash and then another 5 years to set new highs after the 2008 crash. Even worse, is Japan where the index fell again and again to new lows.
This book was written well before the shenanigans of the central bankers from 2008 onwards which have created false values for just about every class of assets. The markets look expensive and history will judge whether it is a good time to invest or not.
I'm betting not.
I must admit being out of the market when it goes up is hard. You're betting that you're in the minority that is sensible and everyone else is crazy.
This book might give you the confidence to be a contrarian and not follow the herd. The recommended alternative to investing in shares is to invest in government bonds. The central banks have ruined that option with their interest rate suppression and quantitative easing. Now there are big risks of losing money in the "safe" government bonds as values will plummet if and when interest rates rise.
Other than that, I recommend the book to anyone who feels they need more than intuitive common sense to avoid the buy high advice of the financial services industry. After all, they gain from you buying and holding investment funds. You only gain if you buy low and sell higher.
About my book reviews - I aim to be a tough reviewer because the main cost of a book is not the money to buy it but the time needed to read it and absorb the key messages. 4 stars means this is a good to very good book.