Yes, You Can Time the Market...but
The cover made me disinclined to buy Yes, You Can Time the Market, but when I noticed I had read most of the books in their bibliography, I shelled out the $39. One good idea is easily worth that. I'm not sure I got one. The book, I thought, might even confirm my belief that it's best not to buy stocks when they are expensive. It did. I won't, however, be adding this book to my top twenty list. Back to front page index Back to books list
The gist of their case, as I grasped it, is rapped up in these quotations:
• "Market Timing is the notion that an investor can look at certain data˛ and have an idea, a good idea, that the market is overpriced or underpriced and is likely to go down or go up."p4
•"Do not ignore price when you buy stocks." 137 "The people who glean the best investment returns are the ones who go shopping when stocks are on sale." 59
•"If you buy cheap by historic standards, your likelihood of making money is simply astronomically better than if you buy when stocks are dear by historic measurements."177
•"Frankly, we have no idea how to go about timing the purchase or sale of individual stocks. If you choose to go this route, good luck and good bye. Our interest is in helping the risk-averse, conservative investor, who more prudently chooses to buy the market as a whole."146
•"The time to buy stocks is when at least one of the signals˛ shows that they are relatively cheap. It is even better if more than one signal is flashing. But historically, even just one green light is dramatically better than none." 139
˛ In Yes You Can Time the Market, seven indicators are covered. There are separate chapters on the price/earnings ratio (historic average: 16) and dividend yield (average 3.4%). They also cover: the relationship of bond yields to stock earnings yields, q ratio, price-to-book, price-to-cash flow and price-to-sales. The most encouraging result from this study for me: Stein and DeMuth found the dividend yield is as good an indicator as the others. We could have told them so, eh:-)
If you follow the ideas from the book, you could be out of the market for long periods. I see this as a major problem. For instance, dividend yield sank to its lowest level ever in 1995...an obvious sell signal. If an investor sold at this point, he/she would have been out of the market for the years when prices were really roaring. This would bother most investors. Stein and DeMuth acknowledge this and toward the end of the book list alternatives, but in my mind, it's not enough.
Chapter 8 entitled Using Market Timing offers general advice on investing. It's good. Here's a sample. "If someone wants to sell you an annuity, consider it carefully for several years. Notice how eager they are for you to sign. Their commission will be large, while the possibility that it is really an appropriate investment vehicle for you can be small."
Their pages about asset allocation are unique. For instance, "If they really knew what asset class was going to go up the most, there would be no need for asset allocation at all-we would just bet on the winning horse."150
"If you are going to adjust your asset allocation, what should guide you? Answer: The valuation of the stock market, of course. Reallocate your portfolio, if necessary, but do so by buying stocks when they are cheap, or buy selling them to buy more bonds when stocks are expensive." 152
"One should always strive to have holdings in each major asset class" 154
"We hope we have shown you how being aware of the value of stocks when you buy and sell can thereby increase your total return." 162
I liked this pair of sentences about bonds: "The conventional wisdom is that people buy stocks for growth and buy bonds to add ballast and dampen out the volatile ups and downs of the stock market. While this shaves total return, it offers a smother ride."
"In the short run, the stock market is a high school popularity contest where true value is overlooked."
If you are standing in a book store trying to decide whether to buy this book read the preface (one page) and the last page in the book, page 177.
If you currently believe dollar cost averaging is a good way to invest, you won't after reading Yes, You Can Time the Market. There is a lot in this book on dollar cost averaging. All their calculations compare amounts invested by market times, dollar cost averagers and lump sum investors.