Message Font: Serif | Sans-Serif

No. of Recommendations: 0
I just read the book with the above title by Ben Stein and Phil DeMuth.

They make a very strong case. I already knew that throughout the stock market's history the P/E ratio averages around 15, and if you had bought the market (index fund) when it is lower than 15, you made much more money over the next 10+ years than if you bought the market when it was higher than 15.

Any way... they show that it is EASY to time the market.

Even with just the price...

Take the 15 year moving average of the PRICE of the S&P 500... Then compare two investors (all dollars are in 2001 inflation adjusted dollars)

#1 invests \$1000 every year from 1902 to 2001
#2 invests \$2000 every year the price of the S&P 500 is below it's 15 year moving average.

#1 invests \$100,000 which grows to \$1,051,008 (951% total return)
#2 invests \$80,000 (only 40 years matched) which grows to \$1,226,213 (1443% total return)

They then do the same thing with just the last 25 years (1977-2001). #1 puts in \$100 a month every month, #2 puts \$200 a month but only when the S&P 500 price is lower than the 15 year moving average (so he pretty much stops by 1985)

#1 puts in \$30,000 total - it grows to \$75,000 (150%)
#2 puts in \$20,400 total - it grows to \$78,000 (283%).

They go on to do the same comparisions using the P/E ratio, Dividend Yield, Price-to-Book, Price-to-Cash, Price-to-Sales.

Very interesting stuff... In all cases, just buying when lower (higher in the case of dividend yields) than the 15 year moving average ends up making you a lot more money.

My plan is to combine investor #1 and #2.

To match the example above, I'll invest \$100 a month every month like Investor #1, but when two or three of the indicators mentioned in the book give the green light, I'll up my investment to \$200 a month.