You really can time the stock market

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The idea of trying to “time” the market — of trying to get in before it goes up, and get out before it goes down — has a terrible reputation.

Timing “is a wicked idea — don’t try it, ever,” wrote Charles Ellis, one of the leading lights of indexing, many years ago.

According to conventional wisdom, any attempt to time the market is fundamentally flawed. Stock markets follow a ‘random walk’, they say. No one can predict the market’s next move, so trying to do so will end up costing you money. A lot of your long-term gains will come from a few big “up” days, and these are completely unpredictable — if you are out of the market when they happen you will miss out on a lot of profits.

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Money managers often push this idea to the clients. It has, from their point of view, a side benefit: It helps keeps the clients fully invested at all times, which means their assets are generating more fees.

But is the idea correct?

The simple answer: No.

Yes, most people who try to time the market end up screwing it up — they buy and sell at the wrong times — but that does not mean the idea is flawed.

On the contrary, historically, “smart” timing, based on market fundamentals, has been one of the soundest ways to beat the market and produce above-average investment returns over the long term.

What is smart timing? Simple: It is long-term timing, and it is based on following a few solid valuation metrics.

It is not about trying to trade short-term. It is not about selling stocks on Wednesday and planning to buy them back on the following Monday. It is not about obscure market technicals like “head and shoulders” formations or Bollinger bands.

It is about cutting your exposure to stocks when the market is expensive in relation to fundamentals, and keeping your exposure down—if need be, for years—until the market becomes much cheaper. It then involves increasing your exposure, and keeping it high, again for years if necessary.

The myth of ‘random’ returns

Techniques available to anyone have worked, and worked well, for over a century. That does not mean they will work in the future, but it is a strong argument in their favor.

First, let’s demolish the myth that the stock market produces entirely “random” returns—that some years it’s up, other years it’s down, that over time it just goes up, and no one can predict anything in advance.


According to long-term data tracked by New York University’s Stern School of Business, an index of the top 500 U.S. stocks has produced since the late 1920s an average return of about 9.3% a year, when you include reinvested dividends.

That sounds like a great return, and it’s the sort of thing money managers often tell their clients. But it contains two hidden nasties.

The first is that it isn’t adjusted for inflation, which means that in real spending-power terms you made several percentage points less each year. And the second thing is that those returns did not come randomly. They came in long waves—bull markets followed by bear markets followed by new bull markets. They were not random at all.

Using Stern’s data and inflation numbers from the U.S. Labor Department, I stripped out the hidden inflation in the stock market returns and looked at the “real” returns, in other words the returns in actual purchasing power. This is what actually matters. Then I looked at these returns over ten-year periods. The reason for that is that if you are an ordinary investor — rather than a trader on Wall Street — what you are usually looking for is somewhere to grow your money soundly over the medium to long term.

You can see the results in the chart near the top of this article.

These results are not random. They are nothing like random. The waves are as clear as — well, as clear as a big wave at Sunset Beach.

If you invested in the stock market in the 1940s or early 1950s, you earned spectacular returns as you cashed in from the gigantic postwar boom.



And if you invested from the late 1970s to the early 1990s, once again you earned spectacular returns in the subsequent returns due to the huge boom from 1982 through 1999. Lucky you.



But what about at the other times?

Hmmm.

If you were unlucky, or foolish, enough to invest in the late 1920s, the later 1930s, or between 1963 and 1973, you were right out of luck. Your returns were terrible. In many cases you actually lost money on the stock market, after accounting for inflation.

Not just for one or two years. Over 10 years.

So even though since the late 1920s the average ten-year “real” return to U.S. stocks (after inflation) has been about 6.4% a year, a quarter of the time it was actually less than 1.3%--a number I chose because it happens to be the guaranteed “real” return on long-term inflation-protected U.S. bonds (I own a few) available right now. When you deduct taxes and investment costs—even in low-cost funds—the actual returns earned by most investors were lower still.

Remember how people tell you the indexes will never let you down if you stick with them for five to 10 years? It’s nonsense.

Note also, please, that these 10-year figures do not include any allowance whatsoever for volatility. Someone who invested in Wall Street in 1928 and held on for 10 years earned a real return of just 0.25% a year, after accounting for inflation. But just to earn that miserable payoff he had to stick with his stocks during the biggest crash in modern history, the 90% collapse of 1929 to 1932.

If he lost his job, or even just lost some of his nerve (understandable), and trimmed his position in the meltdown, he didn’t even get his 0.25% a year. He probably lost money.

The go-with-the-flow crowd pretends that these long periods of poor performance are basically costless. “Just sit there and wait,” they say, “and the next bull market will come along in due course. Don’t try to time these things.” But that’s deeply disingenuous. While you are earning nothing in stocks, you are missing out on gains in bonds or other assets.

The full cost of waiting out these bear markets is horrendous. When you factor in the fees, the taxes, the volatility, and the opportunity cost of what you could have been earning elsewhere, the investor gets hosed.

Knowing the wrong time to invest

OK, some will say. I understand that if I invest in the stock market at the wrong time I may fare very poorly for a decade. But what help is that knowledge? It would only be useful if I were able to work out in advance when those wrong times were.

The good news? You probably can.

I say “probably” because humility is the first virtue of investing, and we can never know the future for certain. We can only apply intelligence guided by experience, and trust to strong probabilities.

There are three measures which have a strong track record of predicting whether this is a good time to make long-term investments in U.S. stocks. Some of them may even have worked since the Victorian era, though I am skeptical of stock market data going back before the World War I. Certainly they seem to have worked well since the 1920s.

Those three measures are the Cyclically-Adjusted Price-to-Earnings Ratio, or CAPE; the Cyclically-Adjusted Book-to-Market ratio; and the “q” ratio. Two of these measures — the CAPE and the q — are readily accessible to the public.

Wielding the CAPE

The CAPE has been popularized by Yale University finance professor Robert Shiller, most notably in his book “Irrational Exuberance,” in which he predicted the bear market which began in 2000. It is popularly known as the Shiller PE ratio. It helped him just win the Nobel Prize for Economics. A summary of some of his research is available here.

This metric compares the current prices of stocks, not to this year’s or last year’s per-share earnings, but to the average per-share earnings of the past 10 years (adjusted for inflation). The argument for using this measure is that it smooths out short-term booms and slumps in profits. By this measure, the S&P 500 index has historically been on an average valuation of about 16 times cyclically-adjusted earnings. When share prices have fallen a long way below that level they have proven to be a really good deal over time: Investors who got in when stocks were cheap and hung on made super returns. On the other hand, when the CAPE or Shiller PE has been much above 16, the stock market has been a much less good deal. The subsequent returns have usually been mediocre or worse.

For example a recent analysis by Mebane Faber of Cambria Investments found that, from 1881 to 2011, if you had invested in the stock market when the CAPE was below 5 — a very rare occurrence — you would have earned a spectacular 22% a year over the next five years, even after accounting for inflation. You’d become rich.

If you had invested when the CAPE was between 5 and 10, you’d have earned on average 13% a year.

On the other hand, if you had invested when the CAPE was over 20 you would have earned just 5% a year, and if you had invested when it was over 25 you would have lost money, after accounting for inflation.

The correlations are strong. So, for example, during the two golden ages the Shiller PE was low. In the 1940s and early 1950s, and again from the late 1970s to the early 1990s, the Shiller PE averaged about 12. On the other hand, in the late 1930s, and in the later 1960s, the Shiller PE frequently rose above 20. In the late 1990s, when the go-with-the-flow crowd were cheering on ”stocks for the long run” and urging you to increase your allocation, the Shiller was flashing bright red warnings above 40.

Clifford Asness, co-founder of money firm AQR Capital and one of the smartest market analysts around, has also studied the performance of the Shiller PE as a predictive tool. His conclusion? Historically, the higher the Shiller PE when you invest in the market, the lower your likely 10-year returns. The results aren’t perfect — in the real world time and chance happen to us all — but they are remarkable. “Ten-year forward average returns fall nearly monotonically as starting Shiller P/E’s increase,” he wrote to clients late last year in a quarterly report.

It is not a perfect measure, of course. The CAPE would have gotten you into stocks too early in the mid-1970s, and out again too early in the mid-1990s. But overall someone who had used the Shiller PE to guide their investment allocation to stocks over many decades would have beaten the market.

Taking cues from ‘q’

The same is also true of the “q” measure, originally studied by economics Nobel laureate James Tobin. This compares the value of U.S. company stocks with how much it would cost to replace all their assets. Back in 1999-2000, when Shiller was using the CAPE to predict the stock- market bust, British financial consultant Andrew Smithers and University of London finance professor Stephen Wright were using the q to do the same thing. They published the results in a book, “Valuing Wall Street.” Some of the research is available here.

The q and the CAPE correlate remarkably closely. Both tend to rise and fall at about the same time and the same way. The q can be tracked by looking at the Federal Reserve’s quarterly reports on money flows in the U.S. economy.

Historically, the “q” ratio averages about 0.6 to 0.7, meaning that the total value of U.S. stocks has typically averages about 60% to 70% of the cost of replacing all those companies’ assets.

Today both the Shiller PE and the q show the market well above long-term averages. The Shiller PE is about 25 and the q is 0.96. This suggests that investors should be exercising a sharp degree of caution. The corollary of this idea is that these things can take years to play out. The market can go up a long way before it comes back down—if it does.

Brett Arends is a MarketWatch columnist. Follow him on Twitter @BrettArends.


转中文译本:
　　　　导读：MarketWatch专栏作家亚兰兹(Brett Arends)撰文指出，其实，如果真正着眼于长期，依靠一些坚实的估值指标，投资者还是可以进行选时操作的，而且有很大可能性击败大盘。

　　以下即亚兰兹的评论文章全文：

　　想要“选时操作”或谓“波段操作”，即试图在市场上涨之前进入，在下跌之前退出的理念，其名声可是够狼藉的。

　　指数化投资理论重镇埃利斯(Charles Ellis)许多年前就说过，波段操作“是一个邪恶的理念——不要去尝试，永远不要”。

　　依传统的智慧看来，试图去在市场上选定特定的时间点，这样的想法本身就存在缺陷。专家们指出，股市是“随机游走”的。没有人能够预测市场的下一个动作，因此想要进行这样的尝试只能是徒然浪费金钱。我们的长期利得当中，很大一部分都是来自少数大规模上涨的交易日，而后者其实根本是不可预计的——如果在这样的交易日到来的时候，你恰好置身市场之外，那么显然会因此损失掉很多利润。

　　很多资产经理人都会向自己的客户兜售这样的观点。从他们的立场说来，这样的理念有一个额外的好处——这可以帮助确保客户始终全额投资，而这种做法就意味着这些资产会产生出更多的费用收入。

　　可是，这种观点是否正确呢？

　　答案是：不。

　　不错，那些试图进行选时操作的人，大多数最终都吃了亏——他们的买进和卖出时机都很糟糕。问题在于，这不见得就是理念本身的错。

　　恰恰相反，历史记录告诉我们，基于市场基本面的真正“精明的”选时操作，恰恰是击败大盘，获得超过平均水准的长期回报的靠谱方法。

　　那么，到底怎样才是精明的？简而言之，就是基于长期的选时，而这一策略的基础其实是一些坚实可靠的估值标准。

　　这和短期交易无关。这绝不意味着周三卖出股票，同时计划着下周一买回来。同样，这也和诸如“头肩顶”或者“布林带”之类令人闻之头大的技术分析无关。

　　相反，这其实非常简单，只是在股票相对于基本面显得昂贵的时候减轻投资力度，而且将降低之后的比重一直保持下去，直至股票价格显得低廉——如果需要的话，可以一直保持很多年。反过来，在增大比重之后，只要需要的话，也可以一直保持很多年。

　　“随机”回报谎言

　　在长达一个世纪的时间当中，这些相关技术都是发挥了效力的，而且表现不错。当然，没有谁能够保证它们能够永远有效，但是至少从目前掌握的情况看来，继续有效的成算还是很大的。

　　首先，还是让我们来戳破股市回报完全是“随机”产物的谎言吧。这种谎言说，股市总是一些年头上涨，另外一些年头下跌，虽然整体是上涨的趋势，但是眼下要发生什么，谁也无法预测。

　　纽约大学斯特恩商学院提供的长期数据显示，1920年代晚期至今，如果计入股息再投资，以美国市值最大500家公司股票编制的指数年平均回报率大约是9.3%。

　　这听起来已经非常不错了，资产经理人们也总是这样和自己的客户说的。可是，这里却隐藏着两件不可告人的事情。

　　第一，这个数字没有根据通货膨胀进行过调整，这就等于说，以真实购买力计算，你每年的收入都应该减掉那么几个百分点。第二，这些回报并不是“随机”到来的。事实上，回报是呈现一种长波形态——牛市之后是熊市，熊市之后是新牛市，并不是随机的。

　　我将斯特恩商学院的数字和美国劳工部的数字结合起来，剥去股市回报当中隐藏的通货膨胀，找出“真实”回报——以实际购买力计算的回报。这其实才是真正有意义的数字。然后，我以十年为周期对这些数字进行观察分析，之所以要这样做，是因为作为散户投资者，而不是华尔街的交易者，我们原本也应该着眼于中期到长期来积累我们的财富。

　　我们可以从附图当中看到计算的结果。

　　这些结果并不是随机的，一看就不随机。波峰和波谷显而易见，就像日落海滩的真正海浪一样清楚。

　　如果你是1940年代或者1950年代早期入场的，你将获得非常可观的回报，因为你恰好赶上了战后的大繁荣。

　　如果你是在1970年代晚期到1990年代早期入场的，你也一样可以获得非常可观的回报，因为市场从1982年到1999年又是一波大繁荣。

　　那么其他时间呢？

　　只能说，呵呵。

　　如果你正好是在1920年代晚期、1930年代晚期，或者是1963年至1973年之间入市，那确实是很不幸。你所获得的回报数字将非常可怕。在很多情况下，如果再考虑到通货膨胀，你的股票投资实际上是赔钱的。

　　不是一年两年的赔钱，而是一赔十年。

　　我们可以看到，尽管1920年代晚期至今，在每一个十年段当中，美国股市扣除通货膨胀之后的真实年平均回报率为6.4%左右，但是在四分之一左右的时间当中，这一数字其实是低于1.3%的——我之所以要提到1.3%，是因为抗通胀国债目前能够担保获得的长期“真实”回报就是这么多。当我们再将税务和投资成本等因素纳入考虑，那么大多数投资者所获得的真实回报甚至还要更低。

　　只要你坚持五年到十年的时间，指数总归不会让你赔钱的——这样的说法是不是听起来很耳熟？但，那是错的。

　　此外，必须指出的是，这些十年数据还没有考虑到无所不在的波动的问题。如果有人在1928年入场，坚持投资十年，那么扣除掉通货膨胀之后，这十年的真是回报率每年平均只有0.25%。由于这段时间当中包含了现代史上最可怕的1929年至1932年大崩盘行情，能有这么多就算运气了。

　　可是，如果他还失去了工作，甚至只是失去了一些勇气(这太可以理解了)，因此而在低迷时期卖出了部分持股，那么他最终所得到的，就连0.25%也没有了。十有八九，他是赔钱的。

　　那些跟着感觉走的人总是说，这些长期糟糕表现本质上也没什么，也不会让我们付出什么成本。“坚持和等待就好。”他们说，“下一次牛市会让一切改变。不要试图推测行情发生的时间。”简直是荒唐至极。你在股票投资当中一无所获，其实也就意味着你失去了投资债券或者其他资产可能获得的回报。

　　在熊市当中等待，成本是非常巨大的。当我们将费用、税负、波动，乃至于可能在他处获利的机会成本都综合起来，真是痛何如哉。

　　判断错误时机

　　一些人或许会说，我明白了，如果我在错误的时间点上投资股市，那么我可能会长达十年都走背运。可是，我怎么能够知道时间正确不正确？如果我真的能够知道哪些时机是错误的，那我就发达了。

　　你猜怎样？你或许真的能够判断出来。

　　我之所以说“或许”，是因为谦逊乃投资第一美德，我们永远不可能确知未来会发生什么。我们只能以经验为导引，运用我们的才智，同时相信最大的可能性。

　　我们有三个指标，在判断某一时间点是否合适的美股长期投资机会上历史表现记录非常出色。有些指标甚至从维多利亚时代就在发挥功效了——尽管对于第一次世界大战之前的历史数据，我个人是持怀疑态度的，不过无论如何，1920年代以来，它们的表现确实是不错的。

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　　这三者就是周期调整市盈率、周期调整股价净值比，以及Q比率。其中有两个，即周期调整市盈率和Q比率，我们很方便就可以了解到。

　　周期调整市盈率

　　周期调整市盈率得享大名，主要应该归功于耶鲁大学金融学教授席勒(Robert Shiller)，他在预测了2000年开始的大熊市的著名的《非理性繁荣》(Irrational Exuberance)一书当中对此曾经多有涉及。有人因此也将其称作是席勒市盈率。席勒能够获得诺贝尔经济学奖，这一研究也出力不小。

　　这一指标并不像普通的市盈率那样，将当前股价拿来和今年或者去年的盈利进行比较，而是把过去十年根据通货膨胀调整之后的市盈率拿来做对象。这样做的好处是可以避免短期利润波动造成的不必要影响。历史角度看来，标准普尔500指数的长期平均周期调整市盈率应该是在16左右。当股价跌至这水平以下，从长期角度说来，就意味着出现了一个很好的入场机会——在股价低廉时入场的投资者会获得巨大的回报。反过来，如果席勒市盈率高于16，那么股市作为投资对象就不那么值得考虑了，因为接下来的时期当中，其回报往往是平庸甚至糟糕的。

　　比如，Cambria Investments的法博(Mebane Faber)最近就在一次研究当中发现，从1881年到2011年，如果你在席勒市盈率低于5的时候——非常罕见——入场，那么之后的五年当中，哪怕扣除通货膨胀因素的影响，你所获得的年平均回报率也能够达到22%之多。这样你肯定发财了。

　　如果你在席勒市盈率位于5到10之间时入场，你未来五年的年平均回报率为13%。

　　反过来，如果你在席勒市盈率超过20时入场，你的年平均回报率将只有5%，而如果你在25以上入场，扣除通货膨胀因素之后，你实际上是亏损的。

　　这样的关联不可谓不密切。比如说，在股市投资的两个黄金(1311.60, -3.10, -0.24%)时间段，席勒市盈率都是很低的。1940年代到1950年代早期，以及1970年代晚期到1990年代早期，这一指标的平均水平只有12。相反，在1930年代晚期和1960年代晚期，这一指标都涨到了20以上。在1990年代晚期，大多数人都在高唱着股票是“长线法宝”的福音时，席勒市盈率已经超过了40，没有比这更明显的警告了。

　　资产管理公司AQR Capital的创始人之一，本时代最出色的市场分析师之一阿斯内斯(Clifford Asness)也研究过席勒市盈率作为预测工具的表现。他的结论是，历史角度说来，在席勒市盈率较高时入场，未来十年的回报率往往较低。这样的结果称不上完美，但是现实世界当中，一切原本都只是可能性，而这样的可能性已经非常值得我们注意了。他去年在一份季度报告当中告诫自己的客户：“当席勒市盈率开始上涨，未来十年的平均表现预期便开始明显下滑。”

　　毋庸赘言，这一指标也并非完美无瑕。比如在1970年代中期，它可能会让我们提早入场，而在1990年代中期又可能让我们提早退场。不过整体而言，如果有人利用这一指标来配置自己的股票投资，那么几十年下来，确实是能够超越大盘的。

　　Q比率

　　同样的描述其实也适用于Q比率。这一比率最初是另外一位诺贝尔经济学奖得主托宾(James Tobin)开发出来的。这一指标将美国企业股票的总价值和其重置全部资产的成本进行比较。在1999年至2000年，当席勒使用周期调整市盈率预测到股市要出大问题的时候，英国投资顾问史密瑟斯(Andrew Smithers)和伦敦大学金融学教授赖特(Stephen Wright)则依靠Q比率得出了同样的结论。他们将自己的结论写入了《华尔街价值投资》(Valuing Wall Street)一书当中。

　　事实上，Q比率和周期调整市盈率彼此的关联也很密切。两者往往会在相同的时间同涨同跌。在联储每季度的美国经济资金流动报告当中，我们可以查到Q比率。

　　Q比率的历史长期平均水平为0.6至0.7，意味着美国股市的规模整体而言，大多数时候应该相当于全部企业资产重置成本的60%到70%。

　　现在，席勒市盈率和Q比率都告诉我们，股价已经超过了长期平均水平，具体而言，席勒市盈率是25，而Q比率是0.96。这就意味着，投资者必须保持高度警惕。当然，同时我们也必须知道，价格的变化也可能会需要多年的时间，市场在下跌之前还可能继续上涨相当的幅度。(子衿)

landlord

  好文，收藏，回去好好学习

Cheese

saved. thanks for sharing. Looks like we are going to another peak in the next 10 years?

novice_trader

mengtt