VII #71 — Is It a Good Idea to Call Long-Term Market Timing Something Else?

I’ve posted Entry #71 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Is It a Good Idea to Call Long-Term Market Timing Something Else?

Juicy Excerpt: I believe that calling long-term market timing what it is constitutes the most direct way to get The Question That Absolutely Must Be Discussed But That Today Is Almost Never Discussed on the table. Stocks only offer a good value proposition when you pay  fair price for them. That’s a compelling message. We should say it that way rather than fuss it up by going out of our way to avoid the word “timing” and by adding references to “risk management.”


  1. arty says

    In a perfect world it would just be called “investing”. But we are not there yet.

    I prefer *Valuations-Informed Investing*.

    This cites the governing principle and is inclusive enough so that non-index funds can be considered; many folks have only actively managed funds available in their 401ks and IRAs but they too can clearly still use the concept.

    Indeed, even non fund types (like those who use individual stocks) can—and do—engage in this.

    Another thing is that I’d avoid the time frame in the term, since retirees who lack a “long-term” time frame can still be—had better be—mindful of the governing principle: valuations.

  2. Rob says

    Those are all super points, Arty.

    I don’t like restricting the concept to “indexing.” But the concept has really always existed for stock pickers — it’s Value Investing. The new element here is that Value Investing has been made simple enough for the average investor to tap into its power. Things are made simple by doing it through index funds rather than through stock picking.

    The terminology is not perfect or final.


  3. arty says

    I hear you. To me, though, “value investing” can imply several things. One is the valuations of the individual securities. The other has to do with distressed stocks from a Fama and French viewpoint. These are very different things and neither of which is bound to relative valuations (PE/10) of the S&P 500.

    I agree index funds (let’s say, passive funds) represents a simpler—and likely better—way to go for most than individual stocks or actively managed funds. But while everyone can avoid the former a great many are stuck with the latter. This is why I’d rather see you focus on “valuations”—for the simple term—and if any added explication were needed, it would come much as you already provide. And “investing” covers all possible modalities.

    Just thinking on it…

  4. Rob says

    I agree with your points, Arty.

    I don’t feel comfortable saying much re mutual funds, though. I feel that the place where we have added something big is with indexes. With mutual funds, about all you can say is “good valuations are better than bad valuations.” But I don’t think the return predictability is there.

    John Walter Russell did some research showing that there is predictability on returns for segments. You can say “small caps are likely to do poorly” or “value stocks are likely to do well.” I don’t personally feel comfortable going that far. I’d like to see more research on that point.


  5. arty says

    I agree fully about not bothering with segments at all—the equity *asset classes*, so to speak. Grantham does the predictive stuff on the individual asset classes in his quarterlies. But the simplicity of using just the S&P 500, backed by the research on it exclusively, is too compelling to abandon for more theoretical stuff with individual classes.

    Now, the mutual funds stuff is very important but nothing need change in the message. It is important because of the way most 401ks and IRA are set up (without availability of indexes and actively managed by a manager). So, many just have a Conservative-Moderate-Aggressive option of an actively managed funds basket. While not optimal, it is however the way it is for most.

    But all that need be suggested here is to make the adjustments that can be made in response to prevailing valuations—essentially the same message. Just make increases to equity and decreases to it when appropriate. That’s it.

    This is why *Valuations-Informed Investing* speaks to me.

  6. Rob says

    That makes perfect sense, Arty.

    I hope that over time we can change the mix of choices permitted to those invested in 401(k) plans as well. It’s a scandal that a broad index fund is not an option for every single plan participant. And I think it would be fair to wonder whether dollar bills have something to do with this absurd situation.

    This sort of thing makes my blood boil. Our retirement hopes are not a joke.


  7. arty says

    Agreed. I think we already know the answer to our wonder. Still, the good news is that a valuations-inspired approach can help even those using actively-managed funds until some better angels make all plans available with index funds as options.

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