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Wiley Investment Classics #35: Value Averaging: The Safe and Easy Strategy for Higher Investment Returnsby Michael E. Edleson
Synopses & Reviews
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."
"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.
Michael Edleson first introduced his concept of value averaging to the world in an article written in 1988. He then wrote a book entitled Value Averaging in 1993, which has been nearly impossible to find—until now. With the reintroduction of Value Averaging, you now have access to a strategy that can help you accumulate wealth, increase your investment returns, and achieve your financial goals.
Michael Edleson first introduced the concept of value averaging in a 1988 paper, and soon after wrote a book on the concept while he was a finance professor at the Harvard Business School. His book--which today is hard to find, but in high demand--is now regarded by many in the investment community as a true investment classic. With the reintroduction of this book, investors will now have access to Edleson's original work on value averaging and discover how to make this proven strategy work for them. This investment classic shows readers how to make the buying and selling of investments nearly automatic by implementing a strategy that involves distributing capital among multiple assets based on market conditions. It also recommends investments best suited for value averaging and demonstrates how to use both dollar cost averaging (DCA) and value averaging to achieve specific investment goals--such as saving for a child's college tuition or your own retirement.
About the Author
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
Table of Contents
Foreword by William J. Bernstein.
Preface to the 2006 Edition.
Preface to the 1993 Edition.
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.
2 Dollar Cost Averaging Revisited.
DOLLAR COST AVERAGING: AN EXAMPLE.
Over One-Year Periods.
Over Five-Year Periods.
LONG-TERM PROBLEMS WITH DOLLAR COST AVERAGING.
3 Value Averaging.
VALUE AVERAGING: AN INTRODUCTION.
LONG-TERM PERFORMANCE AND VALUE AVERAGING.
Linear, or Fixed-Dollar, Strategies.
Adjusting Strategies for Growth.
4 Investment Goals with Dollar Cost Averaging.
Using the Formula.
Annuities: Periodic Investments.
Dollar Cost Averaging and Annuities.
READJUSTING THE INVESTMENT PLAN.
The Readjustment Process.
Down-Shifting Investment Risk.
GROWTH-ADJUSTED DOLLAR COST AVERAGING.
Readjusting the DCA Plan.
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.
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.
7 Playing Simulation Games.
WHAT AND HOW?
CONSTRUCTING THE SIMULATION.
Appendix to Chapter 7: Constructing a Simulation.
ENDNOTES TO APPENDIX TO CHAPTER 7.
8 Comparing the Strategies.
FIVE-YEAR SIMULATION RESULTS.
Using Growth Adjustments.
TWENTY-YEAR SIMULATION RESULTS.
9 Profiting from Overreaction.
TIRING OF A RANDOM WALK.
Mean Reversion and Overreaction.
A Brief Look at the Data.
WHY DOES THIS MATTER?
10 Details: Getting Started.
USING MUTUAL FUNDS.
The Fund versus Stock Choice.
Information on Specific Funds.
WORKING OUT THE DETAILS.
Using a Side Fund.
Operating Within a Retirement Account.
Establishing a Value Path.
Setting Up a VA Value Path: An Example.
Other Important Considerations.
Using Guidelines and Limits.
NOTES FOR FINANCIAL PLANNERS.
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.
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.
12 A Final Word.
What Our Readers Are Saying
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