The Little Book of Sideways Markets: How to Make Money in Markets that Go Nowhere

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9780470932933: The Little Book of Sideways Markets: How to Make Money in Markets that Go Nowhere
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"It's hard to talk clearly about investing and make sense to ordinary readers at the same time. Katsenelson gives a lucid explanation of today's markets with sound advice about how to make money while avoiding the traps that the market sets for exuberant bulls and frightened bears alike." -- Thomas G. Donlan, Barron's

"A thoroughly enjoyable read. Provides a clear framework for equity investing in today’s ‘sideways’ and volatile markets useful to everyone. Clear thinking and clear writing are not often paired - well done!” -- Dick Weil, CEO, Janus Capital Group

"The bible for how to invest in the most tumultuous financial market environment since the Great Depression. A true guidebook for how to build wealth prudently.” -- David Rosenberg, Chief Economist & Strategist, Gluskin Sheff + Associates Inc.

"A wonderful, grounded read for new and seasoned investors alike, Katsenelson explains in plain English why volatility and sideways markets are a stock picker's best friend.” -- The Motley Fool, www.Fool.com

Praise for Active Value Investing

"This book reads like a conversation with Vitaliy: deep, insightful, inquisitive, and civilized." -- Nassim Nicholas Taleb, author of The Black Swan

Q&A with Author Vitaliy N. Katsenelson


What approach do you recommend taking in sideways markets?
What I propose in the book (and practice in life) is active value investing. Instead of being a market timer, I’m a buy-and-sell investor, with a focus on valuing individual stocks.

Find stocks that lie within your circle of competence, analyze them as to whether they meet your qualitative criteria (such as competitive advantage, strong balance sheet, high return on capital, shareholder-friendly management. etc.), value them, determine an appropriate margin of safety (discount to fair value, which should be increased in range-bound markets), and you’ll thereby arrive at a price at which you’d want to buy them.

If a stock trades at or below your buy price, buy it; if not, put it on your watch list. When the stock reaches your fair-value level, you don’t hold it, you sell it. Repeat this process over and over again.

What is one piece of advice you’d give to readers about investing in sideways markets?
An investor makes money from stock appreciation and dividends. Stock appreciation is driven by P/E expansion and earnings/cash flows growth. If you see an apparent catalyst (news or event) that will force P/E to go up – great! But in my experience I found that it is the apparent absence of a catalyst that creates an undervaluation. Wall Street is fairly short-term oriented, therefore if the stock is undervalued but there is no reason or a catalyst to help it go up in the next quarter or two, it gets dumped.

Here is what I propose. Buy stocks that grow earnings and pay dividends, this will put time on your side -- you are getting paid to wait.

Earnings growth is compressing P/E under the stock and dividends are a real time payment for your patience. If a company doesn’t grow earnings and pays little dividend, make sure undervaluation (potential P/E expansion) is significant, or there is a clear catalyst, as time is not on your side in this case. For instance, if you find a stock that is 20 percent undervalued, there is no catalyst, no dividend or earnings growth it is probably not worth buying.

What is a “don’t” when it comes to investing in sideways markets?
We need to shield ourselves from the outside world. I am not advocating moving into a cave with no electricity. But we should not allow the outside into our lives unchecked. If we do, the market will become our master, dictating what we do – which is the opposite of what we should be doing. I actively try to isolate myself from influences of the market. I found the most productive time I have is on airplanes, because I can write and think for hours; there is little interference by the outside world. I really try hard to only check the prices of my stocks a few times a day. I have not perfected this yet — we all have bad habits that it takes time to break. But if we are aware of the negative influences the outside world can have on us, there may be hope for changing our behavior.

I usually try to read newspapers and otherwise keep up with the news before I get to the office. Then I try (this is still an effort) to turn off the Wi-Fi switch on my laptop — this kills the internet, including email, Skype, IM, and RSS feeds. I try to recreate a plane-like environment at work. I don’t turn on the TV during the day. And when I do tune back in, I try to listen to more podcasts, and watch PBS more and business TV less. So to answer your question, I think we should create an environment where the outside world doesn’t change (shrink) our time horizon.

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From the Inside Flap:

With the stock market turning into a roller-coaster ride ofall-time highs and stomach-churning lows, where does that leaveyour portfolio? Pretty much back where you started in 2000. Whichmay be fine for visitors to Six Flags, but for your retirement,savings, and investments, you'd like to actually get somewhere.

In The Little Book of Sideways Markets, respected value investorand author Vitaliy Katsenelson shows you how to survive a stagnantmarket that's neither bull nor bear but instead what he calls acowardly lion—it displays occasional bursts of bravado but isultimately overcome by fear.

Katsenelson, known for the commonsense principles he has writtenfrequently about in the Financial Times, Bloomberg Businessweek andelsewhere, decodes the theories and cuts to the chase withpractical and timely strategies for how you can survive and thriveduring a sideways market—a state of affairs, by the way, weshould expect for the next decade. He'll show you:

  • Why your investments will stall in neutral and what to do aboutit
  • Why, despite its place as the Rodney Dangerfield of investing,you should treat mean reversion with respect
  • Why Tevye was a rich man—and what you can learn from hispurchase of Golde, the cow
  • How the dire state of economic affairs in China and Japan willimpact your investments, and what to do about it
  • The three crucial concepts of value investing—Quality,Growth, and Valuation
  • How focus on process, boring as it may sound, leads tosuccess
  • Why you should become a born-again value investor
  • How to break bad habits and find, buy and sell stocks in asideways market

Making progress in a sideways market is difficult, but thelively and entertaining Little Book of Sideways Markets will helpyou triumph even when the market is stalled.

From the Back Cover:

Praise for The Little Book of Sideways Markets

"It's hard to talk clearly about investing and make sense toordinary readers at the same time. Katsenelson gives a lucidexplanation of today's markets with sound advice about how to makemoney while avoiding the traps that the market sets for exuberantbulls and frightened bears alike."
—Thomas G. Dolan, Barron's

"A thoroughly enjoyable read. Provides a clear framework forequity investing in today's 'sideways' and volatile markets usefulto everyone. Clear thinking and clear writing are not oftenpaired—well done!"
—Dick Weil, CEO, Janus Capital Group

"The bible for how to invest in the most tumultuous financialmarket environment since the Great Depression. A true guidebook forhow to build wealth prudently."
—David Rosenberg, Chief Economist and Strategist, GluskinSheff + Associates Inc.

"A wonderful, grounded read for new and seasoned investorsalike, Katsenelson explains in plain English why volatility andsideways markets are a stock picker's best friend."
—The Motley Fool, www.Fool.com

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Book Description John Wiley and Sons Ltd, United Kingdom, 2011. Hardback. Condition: New. 1. Auflage. Language: English . Brand New Book. It s hard to talk clearly about investing and make sense to ordinary readers at the same time. Katsenelson gives a lucid explanation of today s markets with sound advice about how to make money while avoiding the traps that the market sets for exuberant bulls and frightened bears alike. Thomas G. Donlan, Barron s A thoroughly enjoyable read. Provides a clear framework for equity investing in today s sideways and volatile markets useful to everyone. Clear thinking and clear writing are not often paired - well done! Dick Weil, CEO, Janus Capital Group The bible for how to invest in the most tumultuous financial market environment since the Great Depression. A true guidebook for how to build wealth prudently. David Rosenberg, Chief Economist Strategist, Gluskin Sheff + Associates Inc. A wonderful, grounded read for new and seasoned investors alike, Katsenelson explains in plain English why volatility and sideways markets are a stock picker s best friend. The Motley Fool, Praise for Active Value Investing This book reads like a conversation with Vitaliy: deep, insightful, inquisitive, and civilized. Nassim Nicholas Taleb, author of The Black Swan Thoroughly enjoyable . . for the thoughtful and often entertaining way in which it is delivered. . . Katsenelson takes his reader step by step into the mind of the value investor by relating, in a fictional addendum to Fiddler on the Roof, the story of Tevye s purchase of Golde, the cow. He also describes his own big-time gambling evening (he was willing to lose a maximum of $40) and that of a half-drunken, rowdy fellow blackjack player to stress the importance of process. He then moves on to the fundamental principles of active value investing. What differentiates this book from so many others on value investing is that it describes, sometimes through the use of case studies, the thinking of a value investor. Not just his models or his metrics but his assessments. Katsenelson is an empiricist who weighs facts, looks for contraindications, and makes decisions. He makes value investing come alive. This may be a little book, but it s packed with insights for both novices and experienced investors. And it is a delight to read. Seeking Alpha. Seller Inventory # AAH9780470932933

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Book Description John Wiley and Sons Ltd, United Kingdom, 2011. Hardback. Condition: New. 1. Auflage. Language: English. Brand new Book. "It's hard to talk clearly about investing and make sense to ordinary readers at the same time. Katsenelson gives a lucid explanation of today's markets with sound advice about how to make money while avoiding the traps that the market sets for exuberant bulls and frightened bears alike." Thomas G. Donlan, Barron's "A thoroughly enjoyable read. Provides a clear framework for equity investing in today's sideways' and volatile markets useful to everyone. Clear thinking and clear writing are not often paired - well done!" Dick Weil, CEO, Janus Capital Group "The bible for how to invest in the most tumultuous financial market environment since the Great Depression. A true guidebook for how to build wealth prudently." David Rosenberg, Chief Economist & Strategist, Gluskin Sheff + Associates Inc. "A wonderful, grounded read for new and seasoned investors alike, Katsenelson explains in plain English why volatility and sideways markets are a stock picker's best friend." The Motley Fool, Praise for Active Value Investing "This book reads like a conversation with Vitaliy: deep, insightful, inquisitive, and civilized."Nassim Nicholas Taleb, author of The Black Swan "Thoroughly enjoyable . . for the thoughtful and often entertaining way in which it is delivered.Katsenelson takes his reader step by step into the mind of the value investor by relating, in a fictional addendum to Fiddler on the Roof, the story of Tevye's purchase of Golde, the cow. He also describes his own big-time gambling evening (he was willing to lose a maximum of $40) and that of a half-drunken, rowdy fellow blackjack player to stress the importance of process. He then moves on to the fundamental principles of active value investing. What differentiates this book from so many others on value investing is that it describes, sometimes through the use of case studies, the thinking of a value investor. Not just his models or his metrics but his assessments. Katsenelson is an empiricist who weighs facts, looks for contraindications, and makes decisions. He makes value investing come alive. This may be a little book, but it's packed with insights for both novices and experienced investors. And it is a delight to read." Seeking Alpha. Seller Inventory # AAH9780470932933

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