Investors can learn how successfully and conservatively time the stock market and increase long term investment performance by nearly 50%.

Value stock investors have it easier than program traders

The funny thing about market timing is that value stock investors can actually time the market more effectively than the professionals that attempt market timing in the short term. Long term investors get to reap the effects of real economic swings that force the stock market’s true direction over the investment time frame. In fact, the only true market-beating programs trade in the investor’s term.

Ben Stein’s Book – Yes, You Can Time the Market

The famous investor and actor co-wrote a very simple trading book about this long-term program. It quite simply involves accumulating stocks and mutual funds with good valuations and good dividend pay-outs during weak technical prices. It’s really that easy – and it works. Of all of the trading books I have read (most of them), this cheap little book probably has the easiest and most effective information I have utilized for trading and investing. It is important to note that your holding time frame for this trading program is 20-40 years – and it might not be appropriate for investors who are close to cashing in their savings for retirement income. To work, this investing strategy takes time. Please consult your advisor before risking any savings capital.

The 15-month moving average

I think he uses the 15-month moving average in the book to gage market weakness  – it might be a different technical indicator of some sort. It really doesn’t matter what you use and it does not make sense to optimize indicators as past price action may not repeat itself quite the same way in the future. The premise behind using an indicator to tell us when the stock market is weak is that we will only accumulate stocks during this market condition. We will use dollar cost averaging – but only when the stock market is down. This truly follows the oldest and most basic trader wisdom that ever existed: ”buy low”. The idea is to buy small amounts at even time intervals while this condition exists. We only end up investing in stocks when prices are slightly depressed, quite depressed, and extremely depressed. Never, this way, will we pay too much for stocks or buy the top of “market bubbles”.

I wrote a simple TradeStation program to demonstrate accumulation below the 15-month moving average:

Add fundamental indicators to value stocks

Then Mr. Stein and his co-author Phil Demuth go on to prove that investing in companies that have strong fundamental value (such as stocks with low price to earnings and price to sales ratios) will additionally increase the effectiveness of long term market timing. On top of that, investing in companies with consistent and growing dividends will increase total performance even more. So it is these value stocks that pay good dividends that we should be looking to as investments.

Not individual value stocks

I’m not a big fan of mutual funds, but in the very long time frame, it is quite risky to assume that a company will still be around and thriving by the time we are getting ready to distribute our savings. I suggest investing in inexpensive exchange traded funds and index funds when using this method. Look for funds that specialize in high value and dividends. More conservative investors can even implement this strategy with utility, corporate bond, and even Treasury funds. There’s always a bear market somewhere. Just look out for funds with high maintenance costs and fees as these tend to eat up some of your profits.