How to Invest Wisely — Podcasts on Market Timing, Diversification and Dollar Cost Averaging

Have you ever considered that the “experts” employed by The Stock-Selling Industry might not really want you to learn how to invest wisely? The academic research of the past 30 years (rarely discussed by most “experts”) shows that the key is taking the price being charged for stocks into consideration when setting your stock allocation.

That is, you don’t want to follow a Buy-and-Hold strategy of staying at the same stock allocation at all times. You want to go with a higher stock allocation when prices are good and a lower stock allocation when prices are bad. That’s the secret of how to invest wisely!

how to invest wisely

This article sets forth brief descriptions of RobCasts exploring three key topics: (1) Market Timing — What Works and What Doesn’t; (2) True Diversification; and (3) Dollar Cost Averaging.

How to Invest Wisely / RobCast #12 — Market Timing: What Works and What Doesn’t (Please click on the title for free access to the RobCast)

RobCast #12 makes the following points:

1) There is more confusion about market timing than there is about any other investment-related topic. Most investors believe that market timing does not work. To say that market timing never works is to say that taking the price at which stocks are being sold into consideration when setting your stock allocation might not be a good thing to do. This cannot be.

2) The confusion stems from a failure to distinguish short-term timing and long-term timing. There is indeed a wealth of evidence showing that short-term timing doesn’t work. But there is also a mountain of research showing that long-term timing always works. So it is just as accurate to say that market timing always works as it is to say that it never works.

3) The future of stock investing analysis is learning how to make use of the reality that long-term timing always works to increase returns while reducing risk. Learning as much as you can about how to engage in long-term market timing is the key to becoming a successful stock investor.

How to Invest Wisely /RobCast #160 — True Diversification (Please click on the title for free access to the RobCast)

RobCast #160 makes the following points:

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1) It is not true that taking on more risk adds to your return. Stocks were more risky in January 2000 than they have ever been at any earlier time in history (because they were more highly priced). But the return provided by stocks in the years since has been terrible. Return is a good thing, risk is a bad thing. You want to add to your return while avoiding risk.

2) Diversification is a wonderful example of why it is not true that there is no such thing as a free lunch. Effective diversification permits you to obtain higher returns while taking on less risk. That’s a free lunch.

3) The idea that bonds are the natural counter to stocks is outdated. Stocks are the best asset class for growth. There are times when you need a counter because the risk of stocks is too great. The proper counter is a low-risk asset class. IBonds and Treasury Inflation-Protected Securities (TIPS) are both better counters than bonds because they are not subject to inflation risk, as bonds are.

How to Invest Wisely / RobCast #142 — Dollar Cost Averaging Is a Loser Strategy (Please click on the title for free access to the RobCast)

RobCast #142 makes the following points:

1) My investing advice is “controversial.” The reason it is “controversial” is that I report the simple reality that, if you pay attention to the price at which stocks are selling before you buy them, you will never go wrong. Pay attention to the price and you greatly increase your long-term return while cutting risk by 80 percent.

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2) Dollar Cost Averaging is ignoring price. It can never make sense to ignore price. Why do so many experts say it is a good idea? Most of the the people we think of as experts have ties to The Stock-Selling Industry. They are compromised. They are experts in how to sell stocks, not in how you should invest to finance your retirement.

3) Stocks were selling at insanely high prices for the time-period from 1996 through 2011 (with the exception of a few months in early 2009 — this article was posted in December 2011). So Dollar Cost Averaging did not help you avoid overpaying for stocks for 16 years. Dollar Cost Averaging is a marketing gimmick, a trick that keeps middle-class investors poor.

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