Value Averaging: The Safe and Easy Strategy for Higher Investment Returns (Anglais) Broché – 13 octobre 2006
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Description du produit
Présentation de l'éditeur
Quatrième de couverture
"Dollar cost averaging is making a comeback, and Mike Edleson′s value averaging approach is dollar cost averaging on steroids. A must–read for serious investors willing to adhere to the principles found in these pages."
William G. Christie, Frances Hampton Currey Professor of Finance and Professor of Law, Owen Graduate School of Management, Vanderbilt University
"Dr. Edleson′s book is truly a classic that needs to be perpetuated. I have spent a significant chunk of my career trying to debunk value averaging, but with no success. I′m a believer!"
Paul S. Marshall, PhD, Professor of Finance, Widener University
From the First Edition
"Today′s best way to invest."
"Value averaging takes dollar cost averaging one step further. Besides buying low, you sell shares when the markets soar."
The New York Times
Michael Edleson first introduced his concept of value averaging to the world in an article written in 1988. To satisfy investor interest, he wrote a book entitled Value Averaging, which further detailed this method. Following the publication of the last edition of this highly sought–after book in 1993, it has been nearly impossible to find until now. With the reintroduction of Value Averaging, you now have access to Edleson′s original work on a strategy that can help you accumulate wealth, increase your investment returns, and achieve your financial goals.
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Au lieu de placer 1000 euros tous les trois mois, il préfère placer suffisamment pour avoir 1000 euros après trois mois, 2000 euros après six mois, etc. Si les actions ont gagné 10% en trois mois, on a 1100 euros déjà investis, et on n'ajoute que 900 euros. Si en revanche les cours ont baissé de 10% en trois mois, on n'a plus que 900 euros en actions, et on ajoute 1100 euros. Après cinq ans, on a 20 000 euros ; si la bourse gagne 10% dans les trois mois qui suivent on a 22 000 euros : il faut donc vendre 1000 euros d'actions pour avoir 21 000 euros.
L'idée est intéressante, mais il y a des difficultés pratiques que l'auteur ne résout pas. Si vos 20 000 euros perdent 20% dans un krach vous n'avez plus que 16 000 euros : il faut donc ajouter 5000 euros pour atteindre l'objectif de 21 000 euros. Mais Edleson ne dit pas où les trouver. L'idée de base est donc intéressante mais vous allez devoir réfléchir par vous-même pour trouver une façon réaliste de la mettre en place.
Commentaires client les plus utiles sur Amazon.com
Before I expand on that, let me first mention the two most important constraints of Value Averaging as a strategy:
*1- It's not implementable, as many reviewers already explained.
*2- The strategy produces only 12.56% annualized returns vs the 9.98% from the simplest buy-and-hold-the-index alternative.
I know, those couple of percentage points add up to a lot over the years (2x higher after 30 years). But still 12.56% annualized is not all that great. Especially when comparing it versus a pretty basic dollar cost averaging strategy (which produces 11%).
Now, the book introduces the following three concepts that I consider to be critical for any directional trading strategy:
*1- Small and frequent contributions (time diversification)
*2- Adjustments to the value of those contributions over time.
*3- Mean reversion (the author does not refer to it explicitly)
Starting with 3, it is clear that the author's strategy assumes long-term growth in the price of stocks and cyclical fluctuations around that growth trend. I don't have any issues with these two assumptions as they are justified by historical data and supported by fundamental explanations (at least, this is true for the US equity market and maybe in the rest of the developed countries).
The concept of time diversification was -at many levels- a revelation to me. For a long time, I had tried to develop techniques to follow the trend as accurately as I could. I was never stupid enough to think I could forecast the markets, but at least I thought I could ride the trend with some degree of success. Wrong! The market took ME for a ride and I lost 30% of my capital between July and August 2015 (you guys remember those days). I should say I was only partially wrong, because I still think you can ride the trend. The problem is that I was trying to do it using time series models -which are too restrictive, too hermetic, and too sensitive to the random nature of the markets. Also, I have always been kind of paranoid about getting trapped in the next financial meltdown -which is the reason why my models kept taking me in and out of the market during that period of crazy volatility. I found in the concepts of value averaging and time diversification an excellent way to ride the trend without those worries. In fact, because I always keep most of my capital in cash, I see every market correction as a great opportunity to buy aggressively.
Note that I referred to this strategy above as a "trading" strategy and not as an investing one. This is because there's nothing "fundamental" about it. In fact, the author himself calls it a "formula" strategy. I guess a more modern description of it would be "rule-based strategy". In any case, the strategy seeks to actively exploit market fluctuations -buying heavily after big market downturns and even selling during times of irrational exuberance. And even though there is a definitive focus on the long term, this is certainly not the distinctive aspect of the strategy.
As a trading system, there are many ways in which this strategy can be -first- made implementable and -second- improved. For example, keeping most of your capital in cash most of the time allows you to be less exposed to market corrections and better prepared to take advantage of them. Also, making your re-balance periods a function of the market fluctuations and not a predetermined time frame (let's say monthly) gives you more flexibility to exploit opportunities more efficiently. Using leverage is another key aspect that the author does not mention and that can be used to materially improved the process and results of the strategy.
In spite of these, I would still like to give kudos to the author and thank him for introducing these critical concepts that materially impacted the way I trade today. Well done!!!
First, in the long term bull market like in 1990-2000, you may find yourself underinvested and have too much money staying on the sideline because of the nature of the strategy which is to buy less or sell shares when market gets higher. In this kind of market, VA will most likely underperform DCA since it has less number of shares to ride the uptrend due to the fact that some of the shares were forced to be sold along the path (Not to mention dividend opportunity lost by selling the shares). Tried to test VA with a strong bull market like gold and found VA was way underperformed DCA. (Nothing is like DCA'ing on stock like McDonald for decades. The return is just so huge!)
Second, when your position is large and then stumble into strong bear market just like in year 2000 and 2008, you're likely to quickly run out of your buffer money you've been accumulating during the bull market. VA forces you to prematurely throw your buffer money to the bad market long before it hits the bottom and will you have extra money to cover the rest of the shortfall? (something like 20k/month or even more). If you don't, I guarantee the result will turn out worse than what you expect.
I wouldn't say this is good or bad strategy since there's pros and cons in every investing strategy. One should do his own homework before choosing strategy he's comfortable with.
1) A solid strategy on how to establish a financial plan for mid to long term liabilities (or goals) that incorporates investing in the market
2) A method of investing in the market (more of the 'when' rather than the 'where' or 'how') that the author argues will tend to have a higher return (Value Averaging).
The core concepts of Value Averaging are based off the idea that market returns are mean reverting. If aggregate returns are consistently going to go up and down, but revert to the mean, the investor can basically sell some when the aggregate return is high (put this money in a 'side pot') and buy more when the aggregate return is low using money from the 'side pot', your expected future contributions, or just using extra cash that you have (new money). It's a good concept and the book gives you the fundamentals to actually implement this strategy.
Why 3 stars? I'm not sure that the authors return comparisons, showing roughly a 1% increase in overall return when using Value Averaging is fair.
First off, the Value Averaging strategy requires you put 'new money' in when the market is at it's lowest -- of course this is going to boost returns compared to strategies that don't require you to put in 'new money'... if you take value averaging and split it into two components: (1) putting new money in the market (in excess of your side fund and expected contributions) when the aggregate return is down and (2) the V.A. application of selling high and buying low (but only with the side fund and your expected contributions, I think that you'll find that it's the first component that really gives V.A. any significant excess returns over the other strategies discussed. In my mind, this is unfair as Value Averaging essentially forces you to keep a reserve of potential new money, which is not required from the other strategies.
In my mind, there are a few comparisons you could do to determine if component 1 or component 2 (or both or neither) from VA would be a good enhancement to your investment strategy:
1) Analyze the returns VA would provide with market history *if you never contribute 'new money' and no reserve was required* (essentially component 2 only)
2) Analyze how VA compares to the other discussed strategies by investing the 'new money' at the same point of time in both strategies
3) Analyze VA returns if you took the new money reserve you would have for VA and invested it periodically or as a lump sum in the begging
What I found was that the VA concept of selling high and using these proceeds to buy when aggregate returns are low (component # 2) tends to diminish returns (compared to letting returns accumulate in the market). Of course there were *select* historic periods when using this strategy did result in better returns, notably the 1990 - 2005 data set provided by the author in his VA spreadsheet you will be able to download... however my using other periods over time (from 1928-2015) in my analysis did not produce as attractive of results. But don't trust me (especially my word against Mr. Edleson or Mr. Bernstein (who sometimes suggests this book)), do the analysis yourself!
Finally the author also suggests simulating market returns via a normal distribution as a way to test the VA strategy in a way that isn't dependent on historic returns. I don't want to suggest that this model is a bad way to generate reserves, however the (normal) model does seem biased toward the VA strategy to me. It might not be a mean reverting model, but it is certainly centered around a mean: it will produce returns that go up and down and around a mean -- activity that will certainly make VA look great! Again this doesn't mean that it's a bad method, but VA would look also look pretty pessimistic if you modeled returns under some sort of regime switching model that would better capture the bull and bear runs exhibited in the market.
Overall, I would encourage anyone who takes interest in personal finance to read this book. Although I might not agree with the author on everything, I learned a lot from him, which is the real point, and I'm now using the author's framework as part of my own financial plan. If you have the skills to do your own analysis on VA vs. your own alternative strategies, do it! If you don't want to spend that much time in the weeds, VA is a still a strategy you should read and consider!