Value Averaging: The Safe and Easy Strategy for Higher Investment Returns »

Michael E. Edleson is a Managing Director of Morgan Stanley and oversees the firm's equity risk globally. Prior to that, he was Chief Economist of NASDAQ and a finance professor at Harvard Business School. Edleson earned his PhD at MIT.

Includes spreadsheets on a companion Web site: www.wiley.com/go/valueaveraging

Praise for Value Averaging

"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."

—Money magazine

"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.

Foreword by William J. Bernstein.

Preface to the 2006 Edition.

Preface to the 1993 Edition.

Introduction.

1 Market Risk, Timing, and Formula Strategies.

RISK AND MARKET RETURNS.

Market Returns over Time.

Distribution of Market Returns.

Risk and Expected Return.

MARKET TIMING AND FORMULA STRATEGIES.

Timing the Market.

Automatic Timing with Formula Strategies.

ENDNOTES.

2006 NOTE.

2 Dollar Cost Averaging Revisited.

DOLLAR COST AVERAGING: AN EXAMPLE.

SHORT-TERM PERFORMANCE.

Over One-Year Periods.

Over Five-Year Periods.

LONG-TERM PROBLEMS WITH DOLLAR COST AVERAGING.

Growth Equalization.

SUMMARY.

ENDNOTES.

3 Value Averaging.

VALUE AVERAGING: AN INTRODUCTION.

SHORT-TERM PERFORMANCE.

LONG-TERM PERFORMANCE AND VALUE AVERAGING.

Linear, or Fixed-Dollar, Strategies.

Adjusting Strategies for Growth.

SUMMARY.

ENDNOTES.

2006 NOTES.

4 Investment Goals with Dollar Cost Averaging.

BACKGROUND.

Lump-Sum Investments.

Using the Formula.

Annuities: Periodic Investments.

Dollar Cost Averaging and Annuities.

READJUSTING THE INVESTMENT PLAN.

The Readjustment Process.

Flexibility.

Down-Shifting Investment Risk.

GROWTH-ADJUSTED DOLLAR COST AVERAGING.

Exact Formula.

Approximate Formula.

Readjusting the DCA Plan.

SUMMARY.

ENDNOTES.

Appendix to Chapter 4: Constructing a DCA Readjustment Spreadsheet.

5 Establishing the Value Path.

VALUE AVERAGING VALUE PATHS.

The Value Path Formula.

Flexible Variations on the Value Path Formula.

Readjusting the VA Plan.

A Cautionary Note.

An Alternate Method.

SUMMARY.

ENDNOTES.

Appendix to Chapter 5: Constructing a VA Readjustment Spreadsheet.

6 Avoiding Taxes and Transaction Costs.

TAX CONSIDERATIONS WITH VALUE AVERAGING.

The Advantage of Deferred Gains.

Deferring Capital Gains Taxes: An Example.

A Compromise: No-Sell Value Averaging.

REDUCING TRANSACTION COSTS.

Limiting Taxes.

Limiting Costs.

SUMMARY.

ENDNOTES.

7 Playing Simulation Games.

WHY SIMULATIONS?

WHAT AND HOW?

Parameters.

Expected Return.

Expected Variability.

Randomness.

CONSTRUCTING THE SIMULATION.

An Example.

ENDNOTES.

Appendix to Chapter 7: Constructing a Simulation.

2006 NOTE.

ENDNOTES TO APPENDIX TO CHAPTER 7.

2006 NOTE.

8 Comparing the Strategies.

FIVE-YEAR SIMULATION RESULTS.

Using Growth Adjustments.

No-Sell Variation.

Volatility.

TWENTY-YEAR SIMULATION RESULTS.

SUMMARY.

ENDNOTES.

9 Profiting from Overreaction.

TIRING OF A RANDOM WALK.

Mean Reversion and Overreaction.

A Brief Look at the Data.

WHY DOES THIS MATTER?

Timing.

ENDNOTES.

2006 NOTE.

10 Details: Getting Started.

USING MUTUAL FUNDS.

The Fund versus Stock Choice.

Index Funds.

Information on Specific Funds.

WORKING OUT THE DETAILS.

Using a Side Fund.

Operating Within a Retirement Account.

Establishing a Value Path.

2006 NOTE.

Setting Up a VA Value Path: An Example.

Other Important Considerations.

Using Guidelines and Limits.

NOTES FOR FINANCIAL PLANNERS.

Advanced Methods.

SUMMARY.

ENDNOTES.

2006 NOTE.

11 Examples: Strategies at Work.

THE GOAL AND INVESTMENT ENVIRONMENT.

Choosing an Investment.

Setting the Goal (Dealing with Inflation).

How Much Should He Invest?

INVESTMENT RETURN & TAXES.

Expected Return.

Taxes.

IMPLEMENTING DOLLAR COST AVERAGING.

1981: Setting Up DCA.

1982–1983 Investment Results.

1983: Reassessment and Readjustment.

The 1985 Readjustment.

And So On and So On . . . .

Wrapping It Up: 1991 Results.

IMPLEMENTING VALUE AVERAGING.

Establishing the Value Path.

1983: Readjusting the VA Plan.

Future VA Readjustments.

VA Investments.

SUMMARY.

KEY FORMULAS.

ENDNOTES.

12 A Final Word.

Index.