Yes, You Can Time the Market!

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Summary: What the Street won't tell you
Review: A lot of common sound investing strategy. The authors test various pricing metrics agains 100 years of stock/market pricing data and show you the results over 5, 10, 20 years.

They show you how to use p/e, price to book, price to cash flow, price to moving average, as measures to tell if the S&P 500 is overvalued or undervalued. In years when it's undervalued, buy. When overvalued, keep your cash and wait, but hold long term. (Peter Lynches books tell you the same stuff but with more fluff and junk.) This book is packed with usefull tidbits and historical data that you just can't find easily on it's own.

It's the same stuff that you'd learn in an MBA program, that the street professionals don't want to tell you. They want to sell you stocks today because they need commissions today. They'll use whatever metric says yes or make one up, to justify you buying an over priced stock.

If you read this book, you'll know more than 90% of the slobs packing $$$ every month into their 401Ks without a clue on what they're buying. They're buying on faith only..... People that buy on faith and hope get crushed by the market at some point when things get priced back on fundamentals.

Make no mistake, the finanacial markets are buyer beware. As IPO crazed people, day-traders, and holders of ENRON found out.... Don't be a victim, learn before investing.

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Summary: You can successfully time the market?
Review: According to the backward looking evidence presented in this book - the answer is an unqualified yes. All you have to do is live to be 200 years old so that you can take advantage of the optimal buying opportunities that occasionally present themselves.

Seriously, I bought this book because I enjoy Stein's humor, and there wasn't enough of it in evidence here. The techniques the authors advocate could have been expressed in a 15 page brochure and are basically useless to the typical investor with a 20 year accumulation period.

Want to buy this book? Wait until it appears in the bargain basket at your local B&N or Borders Books. It won't be long before you can find it there.

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Summary: Yes, you can time the market
Review: Although Ben Stein is a very smart man he has several incorrect statistics in this book... Most of his ideas won't work in real life investing.. I hope readers take this book for what it is.. A joke! Or at best, entertainment. Do not use this book as an investment guide....

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Summary: This Is A Book About Value Investing Not Market Timing
Review: 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:
· Dividend yield
· P/E ratio
· Tobin's Q (measure of fundamental value)
· Price-to-sales ratio
· Price-to-cashflow ratio
· Bond yields

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.

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Summary: Twisted numbers
Review: Although their premise is sound (buy low) and they quote numerous valid studies, there are serious flaws and bias in their results. Part of it is due to overlapping periods in their tests. The different methods used to demonstrate buying low all have their greatest impact once out 10 and 15 years. They even admit with a 5 year time frame their timing methods don't have much difference over regular periodic investing (DCA).

It begs the question, does todays P/E (or P/S, P/CF, Div Yield, etc.) really have predictive power on the price in 10 or 15 years? Another important thing is that in the research papers they quoted, these measures were originally tested on individual stocks and in this book they are being applied to a market index (SP500). They are not the same thing and it is no small difference.

If you look carefully at their results, using price alone is about as profitable as using the combinations of criteria they present. It's a very long term system. I think a 15 year moving average is extreme by anyone's standard. Unless your a youngster, (under 40) there might not be enough time to reap the benefits of this system before retirement. And I'll bet if you shortened the time frame considerably the profits would go up exponentially and you would still miss the worst market meltdowns.

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Summary: Astonishing!
Review: Astonishing that these highly educated authors have no idea what opportunity cost is. Their method of analysis is completely invalid; the market timer should not have the ability to double up on his investments if the regular investor cannot. If you can only save $1000 per month, how can you be investing $2,000? The answer, of course, is by borrowing money. Once you factor in the cost of borrowing that extra money into the authors' scenario, the entire market timing system collapses.

It's also astonishing that the authors point out but gloss over the fact that their system would have kept your money out of the market for the past 20 years. Despite the bear market of '00-'02, the past two decades have been one great time to be in stocks.

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Summary: Ben's done it again - Yes, you can time the market!
Review: Authors Ben Stein and Phil DeMuth have hit a home run!

Looking at metrics and other common sense indicators Stein and DeMuth show you how to invest at the right time. Buy, sell or hold - it's all understandable and logical.

Do yourself a favor - Buy, read and follow the advice in the book!

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Summary: A guide to investment sanity
Review: Ben Stein and Phil DeMuth make a strong and easy to understand case for the power of price and the consideration of value in making investment decisions. I am sure that more people are willing to listen to these arguments today than were willing to them in the fevered investment climate of a few years ago. However, I wonder if they will forget the next time the fever hits. Those that forget will simply make more opportunities for capital gains than those that remember and stay disciplined.

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.

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Summary: Sensational, Must-Read Stock Market Book
Review: Finally, a stock market book that cuts through all the hype and the jive sales talk and gives serious advice to serious investors. Wish I'd read it twenty years ago. At least I've got it for the next twenty. Stop losing money by following the crowd. Get this survival guide now!

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Summary: I'm buying it for everyone I know!
Review: Finally, at last, a book about the financial market that combines great advice with true wit and common sense. I've bought it for everyone I know. (Including my three year old son... A must for every Mom who'se thought about entering the market, but has never quite felt able to trust it before. With these chaps you're in safe, informative, entertaining hands. Alison Larkin