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Readers reviews of Yes, You Can Time The Market

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This is an engaging and subversive book that sets out to prove a single contention that runs counter to the perceived wisdom promoted by fund managers and others. It succeeds, and the evidence is overwhelming. This is a book for long term investors, and although it does not acknowledge its antecedents, it draws upon concepts that traders and other active investors have used for decades. This is the book every would-be investor should read before he goes near a broker, fund manager or investment advisor.

 

The authors  understand that whether we like it or not, we are all market timers. In Better Trading we approached this idea from a  traders perspective. In Active Investing, Alan Hull shows how timing is applied to fundamental analysis to boost returns for longer term investors. This book clearly starts with an investors perspective so the data used to support the contention is based on a century of index analysis.

The book tackles two ideas that benefit Wall Street and disempower the individual investor. The first is the idea that you are too dumb to know what to do with your money. A common theme throughout the discussion is that ” Lots of really smart people do dumb things with their money on Wall Street every day.” The authors suggest that it  is more important to avoid doing something really stupid than it is to do something that is astoundingly brilliant. The authors back this assertion with simple and clear ideas that show some common ideas to avoid which helps investors to  significantly  outperform the smart approaches that investment advisors are so fond of.

 

Each approach is illustrated with two typical investors. One who follows classic investment advice, and the other who applies the approach discussed by the authors. The difference in outcomes is significant and every investor needs to understand how and why this happens.

 

The second idea that is tackled is the claim that you cannot time the market. This is simply nonsense and the evidence supports this conclusion. The authors claim you are better off buying when stocks are cheap. They start by using a 15 year moving average of the S&P, buying only when the market dips below this level. As they write, the idea is “so simple that a child can grasp it, yet so elusive that your broker will never get it.”

 

In later chapters they introduce some other commonly accepted measures of cheap and expensive and show how buying when stocks are cheap on any of these measures will lock in superior returns.

The price of stocks when they are purchased does have a massive impact on the final investment returns. This has the ring of common sense, but it runs counter to the self serving line peddled by fund managers that time in the market is more important than timing the market. They say buy today because stocks always go up in the long run. The authors use this long term index data to compare their results with the investors using the dollar averaging approach. The investors who purchases stocks at regular intervals using the same amount of cash each time does much worse than the investor who simply waits and purchases stock when it is cheap.

 

On a shorter three year time frame we demonstrated the impact of timing on a dollar averaging approach in Better Trading. The point at which you make your decision, and the price you pay are the most significant factors in long term investment returns. It is simply not true to suggest that you cannot tell when stocks are cheap, or expensive. You might use a moving average of index values, historical PE ratios, dividend yields, or price to cash flow. These all provide a means of separating cheap from expensive. Buying when they signal cheap means you are timing the market.

 

It works, and as an investor you cannot afford to ignore this. Read this small book and it will change the way you approach information about investing.

 

 

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