Active Value Investing Making Money in Range-Bound Markets

by Katsenelson, Vitaliy N.

• ISBN13: 9780470053157
• ISBN10: 0470053151
• Edition: 1st
• Format: Hardcover
• Copyright: 2007-09-28
• Publisher: Wiley

Summary

A strategy to profit when markets are range bound-which is half of the time One of the most significant challenges facing today's active investor is how to make money during the times when markets are going nowhere. Bookshelves are groaning under the weight of titles written on investment strategy in bull markets, but there is little guidance on how to invest in range bound markets. In this book, author and respected investment portfolio manager Vitaliy Katsenelson makes a convincing case for range-bound market conditions and offers readers a practical strategy for proactive investing that improves profits. This guide provides investors with the know-how to modify the traditional, fundamentally driven strategies that they have become so accustomed to using in bull markets, so that they can work in range bound markets. It offers new approaches to margin of safety and presents terrific insights into buy and sell disciplines, international investing, "Quality, Valuation, and Growth" framework, and much more. Vitaliy Katsenelson, CFA (Denver, CO) has been involved with the investment industry since 1994. He is a portfolio manager with Investment Management Associates where he co-manages institutional and personal assets utilizing fundamental analysis. Katsenelson is a member of the CFA Institute, has served on the board of CFA Society of Colorado, and is also on the board of Retirement Investment Institute. Vitaliy is an adjunct faculty member at the University of Colorado at Denver - Graduate School of Business. He is also a regular contributor to the Financial Times, The Motley Fool, and Minyanville.com.

Author Biography

VITALIY N. KATSENELSON, CFA, has been involved with the investment industry since 1994. He is a portfolio manager with Investment Management Associates, where he comanages institutional and personal assets utilizing fundamental analysis. He is also an adjunct faculty member at the University of Colorado at Denver, Graduate School of Business. Katsenelson is a regular contributor to the Financial Times, MarketWatch from Dow Jones, and Minyanville.com. He is a CFA charter holder, member of CFA Institute, has served on the boards of the CFA Society of Colorado, and is currently on the board of the Retirement Investment Institute. Katsenelson received both his bachelor of science and his master of science in finance from the University?of Colorado at Denver, where he graduated cum laude. To read articles Katsenelson has written over the years, please visit: ContrarianEdge.com or ActiveValueInvesting.com.

Table of Contents

Preface

What the Future Holds

Introduction: Range-Bound Markets Happen

Fasten Your Seat Belts and Lower Your Expectations

Let's Identify the Animal

Secular versus Cyclical

Distinction between Secular Bull, Bear, and Range-Bound Markets

Is 100 Years Long Enough?

Stocks Carried the Torch in the Long-Run Marathon

International Stocks Were Bright Lights, Too

Will Gold Shine Again?

Gold's Recently Emerged Competition

The Deception of the Long Run (Marathon)

Range-Bound Markets Erode Bull Market Returns

The Long Run for Us May Be Shorter Than We Think

Emotions of Secular Bull, Bear, and Range-Bound Markets

Bull Market Euphoria

Bear Market Doldrums

What Does a Secular Range-Bound Market Feel Like?

Volatility of Bull and Range-Bound Markets

Stock Market Math

Sources of Capital Appreciation: Earnings Growth

Sources of Capital Appreciation: Price to Earnings

Sources of Dividend Yield

Why Range-Bound Markets Follow Bull Markets

It Is Not Over Until It Is Over

Bonds: A Viable Alternative?

Why Not Bonds?

Asset Allocation Role Is Diminished in Range-Bound Markets

Active Value Investing

Analytics: Introduction to Analytics: The Quality, Valuation, and Growth Framework

The "Q"-Quality

Competitive Advantage

Management

Predictable Earnings

Strong Balance Sheet

Significance of Free Cash Flows

High Return on Capital

Conclusion

The "G"-Growth

Sources of Growth: Earnings Growth and Dividends

Past Has Passed

Future Engines of Growth

Dividends

Growth Matters-A Lot!

The "V"-Valuation

Tevye the Milkman's Approach to Valuation

Review of Relative Valuation Tools

Absolute Valuation Tools-Discounted Cash Flow Analysis

Relative versus Absolute Tools

Absolute Models Overview

The False Precision of Math

Absolute P/E Model

Discount Rate Model

Margin of Safety Model

The Marriage of Absolute P/E and Margin of Safety

Bring Out the Toolbox

The P/E Compression and How to Deal with It

Let's Put It All Together

The Added Clarity

One Out of Three Is Not Enough

Two Out of Three Is Better, But Is It Enough?

Conclusion

STRATEGY: Introduction to Strategy: The Value of Process and Discipline

Buy Process-Fine-Tuning

The Value of the Process and Discipline

Think Long-Term, Act Short-Term

Meet Your New Best Friend-Volatility

Time Stocks, Not the Market

Cash Is King

Be Ready to Strike When the Time Comes

Buy Process-Contrarian Investing

Contrarian Is the Name of the Game

You Don't Have to Own It

Be a Myth Buster

Quantify Everything and Be a Contrarian Headline Investor

Time Arbitrage

Finding New Ideas

Do In-Depth Primary (Your Own) Research and Document It

Buy Process-International Investing

The World Has Flattened: Hola, Bonjour, Guten Tag, Buon Giorno to the Rest of the World

Same Difference

Location of Corporate Headquarters Abroad May Not Constitute a Foreign Company

You Are Exposed to More Foreign Political Risk Than You Realize

What About the United States?

Pick Your Comfort Zone and Go from There

Don't Confuse a Fast-Growing Economy and a Good Investment

Currency Risk

How Much Is Too Much?

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