Rating: 
Summary: Can You Time the Market? These two did not!
Review: The authors maintain you can use a 15 year moving average of various valuation indicators as a buy signal to invest in the S&P 500. The indicators include: Price level, P/E ratio, Price/Book Value, Price/Cash Flow, Price/Sales. Whenever the S&P 500 trades under its 15 year moving average on these indicators, it is a good time to buy. They show that between 1977 and 2001 an investor using any of these indicators (P, P/E, P/B, P/CF, P/S) to invest in the S&P 500 whenever it traded lower than its 15 year moving average would have beaten an investor doing dollar cost averaging with monthly investments over the same period. One condition is that the market timer would invest $200 every month he had a buy signal, and not invest anything when he did not. Meanwhile, the dollar-cost-averager would invest $100 on a monthly basis. Over the entire period, the market timer gets to invest only $20,000 in the S&P 500 ($200 times 100 months). Meanwhile, the dollar cost averager invests $30,000 in the S&P 500 ($100 times 300 months). In each case, the market timer comes out ahead and ends up with more money in 2001. The authors attempt to make a case that the market timer superior results (regardless of the indicator used) is due to buying into the market when it is low. But, the success of the market timer is due to his accelerated equity investment schedule. By early 1985, the market timer has made his full investment of $20,000 in equities. By the same date, the dollar cost averager has invested only $10,000. The dollar cost averager much slower investment schedule will never allow him to catch up to the market timer. The dollar-cost-averager average holding period of his stock portfolio is only 12.5 years compared to 21.5 years for the market timer. This is why the market timer wins. The above example is repeated five times (once for each indicator) with the exact same flaw. The accelerated equity investment schedule follows an identical pattern regardless of the indicator used. What these guys did is called backtesting. The authors looked at various moving averages such as 5, 10, and 15 years. And, devised different investment rules until they came up with a combination of a moving average and a rule that would beat income averaging. They did it, but ran into a methodological flaw (the frontloading of the investment) they were not even aware off. Additionally, this investment strategy is most unrealistic. Who could stomach investing twice as much as his regular investment schedule just when the market is experiencing a severe Bear market (that is what it takes for the market to go south of its 15 year moving average). This strategy is not market timing. Following this strategy you would have been locked out of making any additional equity investments since 1985. Also, the authors do not have a "sell signal" spelled out because it would kill their strategy. The stock market only rarely goes south of its 15 year moving average (regardless of the indicatory used) and quickly goes back up north of it. Thus, with a sell signal you would never hold your S&P 500 holdings for long. Yet, the authors stress that their strategy does not show superior returns until 15 to 20 years out. The lack of a sell signal would have left you fully exposed on your S&P 500 holdings invested prior to 1985 to the crash of 1987, the downturn of 1989, and the severe Bear Market of 1999 to 2002.
The authors give great credit to the investing principles developed by Benjamin Graham, the father of value investing. Some of these principles include only buying companies who sell for less than their working capital and whose earnings yield is twice higher than their bond yield. The only problem is that you could not find any stock meeting these criteria since 1950s. These principles have become outdated as markets have become more efficient. The authors strategy is almost as outdated as Benjamin Graham value investing principles. The difference is that Graham wrote his book 30 years before his investing guidelines became obsolete. Meanwhile, the authors wrote their book 18 years after their strategy was outdated in 1985. They actually belittle the sound concepts of asset allocation and portfolio rebalancing. They pretend that asset allocation has no merit because no one knows the future returns from equities and bonds. However, we can construct a directionally correct asset allocation for different risk levels by inputting the respective equities and bonds returns historical mean, standard deviation, and correlation with each other. On portfolio rebalancing, they suggest it is worthless since two investors who would have started the prior century with a 50/50 split, the one not rebalancing his portfolio to a 50/50 position yearly would have ended up far richer at the end of the century than the other one who did rebalance his portfolio yearly. But, the investor who let his allocation drift from 50/50 to 99/1 (equity/bonds) incurred a far greater risk. The authors ignored all that. Asset allocation and portfolio rebalancing are far more important to your capital preservation than their unusable market timing proposition.
Rating: 
Summary: This is one book I wish I didn't purchase
Review: The best aspect of this book is the "common sense" it provides regarding buying stocks/funds. However, in a nutshell, the authors recommend holding onto stocks/funds for 30 years. Unfortunately, I'm only 30 but even now at my tender age with all my investment years ahead of me, I wasn't convinced this is a book I want to trust for the next 30 years.
The gains they talk about are hardly convincing. For example, using their approach would have gained 818% in thirty years HOWEVER had you simply done dollar cost averaging, etc you would have gained anywhere from 600-750%. It just depends on the years they were covering. I literally thought to myself...why go through 30 years of this if it will only result in that much difference. Their findings are interesting but not convincing or revolutionary enough to make me change my present investment approach...and I would be very surprised if anybody will be that affected by this book.
Rating: 
Summary: hard to argue the evidence
Review: The strategy recommended in this book is as easy as buying shares of an exchange-traded fund (ETF). The hard part, I imagine, would be waiting. The "indicators" described by this book highlight the most recent good times to buy:
- summer to fall 2002
- march to april 2003
- now.
Just by looking at the recent history of the S&P 500 since these "buy points," one would conclude that this advice is 2 for 2. Will the market turn upwards once again after the summer of 2004, where the p/e ratio is below its 15-year moving average (inflation adjusted)? If so, this book will turn out to be that much more valuable.
Definitely a supplement to the "Random Walk" school of investment advice, and worth getting.
Rating:
Summary: A Must- Read for Long-Term Investors
Review: The stupendous collapse of the NASDAQ is still fresh in many people's minds. This book offers a way to systematically avoid such euphoria in the future.
Simply put, they advocate buying only when key indicators (such as price to earnings or price to book ratios) fall below their 15-year moving average. When such indicators are higher than their 15-year moving average, stay on the sidelines with Treasuries. Ample evidence is supplied to show how this approach would have netted a hypothetical investor much more than conventional dollar-cost-averaging over the past 100 years.
However, some big flaws lurk in the margins that are not addressed. By utilizing a 15-year moving average, they have effectively reduced the number of unique supportive data samples to 7. There are only seven 15-year windows within a 100 year period. It is true that they utilize a moving average, thus generating an infinite number of 15-year averages, but the point is that the 15-year average of the years 1970-1984 is not fundamentally independent from the 15-year average of the years 1971-1985 because they share 14 years worth of data. Only the windows 1945-1969 and 1970-1984 are actually unique 15-year data windows. So the question is, do you trust an experiment based on only a tiny few data points?
The other larger and more substantial flaw is that the strategy proposed by the authors is stained by the same flaw as every other simple and mechanical investment strategy: it uses a strategy perfected through data mining. That is, their ultimate strategy recommendation was selected from a field of nominated strategies and the assumption is made that what worked best in the past will work for the future. This is a classic academic's assumption flaw that has been repeatedly highlighted by the failure of other back-tested strategies such as the once popular "Dogs of the Dow" strategy. Many simple mechanical investment strategies have been invented over the decades and none has ever stood the test of time. I do not see a reason why this strategy will be different.
That said, this book is useful for the nuggets of healthy skepticism that everyone should adopt towards any investing endeavor.
Rating: 
Summary: A systematic way to stay cool-headed, but with big flaws
Review: The stupendous collapse of the NASDAQ is still fresh in many people's minds. This book offers a way to systematically avoid such euphoria in the future. Simply put, they advocate buying only when key indicators (such as price to earnings or price to book ratios) fall below their 15-year moving average. When such indicators are higher than their 15-year moving average, stay on the sidelines with Treasuries. Ample evidence is supplied to show how this approach would have netted a hypothetical investor much more than conventional dollar-cost-averaging over the past 100 years. However, some big flaws lurk in the margins that are not addressed. By utilizing a 15-year moving average, they have effectively reduced the number of unique supportive data samples to 7. There are only seven 15-year windows within their 100 year research period. It is true that they utilize a moving average, thus generating an infinite number of 15-year averages, but the point is that the 15-year average of the years 1970-1984 is not fundamentally independent from the 15-year average of the years 1971-1985 because they share 14 years worth of data. Only the windows 1945-1969 and 1970-1984 are actually unique 15-year data windows. So the question is, do you trust an experiment based on only 7 data points? The other larger and more substantial flaw is that the strategy proposed by the authors is stained by the same flaw as every other simple and mechanical investment strategy: it uses a strategy perfected through data mining. That is, their ultimate strategy recommendation was selected from a field of nominated strategies and the assumption is made that what worked best in the past will work for the future. This is a classic academic's assumption flaw that has been repeatedly highlighted by the failure of other back-tested strategies such as the once popular "Dogs of the Dow" strategy. Many simple mechanical investment strategies have been invented over the decades and none has ever stood the test of time. I do not see a reason why this strategy will be different. That said, this book is useful for the nuggets of healthy skepticism that everyone should adopt towards any investing endeavor.
Rating:
Summary: A decent read
Review: They are making a case for value investing in the book with a 15 years or longer horizon. If you are a trader or a stock picker or have a shorter time horizon, skip this book. You won't find anything you like in there. I found much of the advices sound for the investment public. If you don't have time to manage your portfolio and/or 401K, and you don't feel like dollar cost averaging down in a sliding market or up into a bubble, use the 4 indicators for measuring the relative state of the market to fine tune your investment directions and entry is not a bad idea.
Rating:
Summary: Good statement of the obvious
Review: This book is essentially a logical proof of an obvious statement, "there are characteristics of a market that make it a good or bad time to buy stocks." It looks only at long term timing such as might be advocated by Bob Brinker. It does not advocate and provides no method for timing which might find turning points more often than every few years. As a consequence, it is unlikely to lead to a stock trading methodology.
Rating:
Summary: Good statement of the obvious
Review: This book is essentially a logical proof of an obvious statement, "there are characteristics of a market that make it a good or bad time to buy stocks." It looks only at long term timing such as might be advocated by Bob Brinker. It does not advocate and provides no method for timing which might find turning points more often than every few years. As a consequence, it is unlikely to lead to a stock trading methodology.
Rating:
Summary: Indispensable advice for the long-term investor
Review: This book isn't about short-swing trading; it's about how to use the power of fundamental research to evaluate whether the stock market is worth buying at any given time. Stein and DeMuth bring a considerable amount of intellectual firepower to the discussion: how else do you rate a blurb from a Nobel economist like Milton Friedman on the dust jacket? They crunch a century of data, and yet make it a lively, entertaining read. ...
Rating:
Summary: Yes, You Can Time the Market!
Review: This exceptional book is a must-own for anyone who is serious about investing. I would still give the book 5 stars if all it did was prove its thesis in a highly readable fashion that, indeed, the market can be timed. Or, if all it did was show you why it's not smart to put your money into index funds or to buy stocks willy-nilly at any time of year. The book does all of that -- i.e., tell you why and how the market can be timed and prove it in succinct clear prose -- but it does more: while Stein and DeMuth guide you effortlessly through the trees, you feel like you're seeing the forest (and you are). You'll come away from this book knowing how and why to invest your money today, while understanding the entire market from the beginning of the 20th Century. I can only think that Ben Stein and Phil DeMuth had a large staff of folks to compile a colossal amount of information -- essential information for any serious investor -- and then the two of them distilled it all down and made it easy to consume. As I said, this information alone would make the book worth 5 stars (and indeed makes it a steal at its current price), but it's worthy of 5 stars "plus" because of the presentation. A few weeks ago, The Wall Street Journal reviewed four new books on investing, this one being one of them. Of the four, the Journal liked this book best. It's really a great piece of work.
| 
