Vitaliy Katsenelson's second book, The Little Book of Sideways Markets: How to Make Money in Markets that Go Nowhere, is written for the layman but should appeal to a broad range of investors, from novices to professionals. While I don't necessarily ascribe to his central premise that we are stuck in a sideways market for the next several years, the philosophy of investing that he describes resonates with me. He calls it "Active Value Investing". Translation: Buy low and sell fair.
Katsenelson lays out the case for a sideways market in the first few chapters in the book. I believe the weakness in his argument is his use of "reported" earnings to describe the valuation of the market. He actually averages it with "operating" earnings. The book was written in mid-2010, and both sets of numbers have increased since then (ahh, the perils of publishing a book). In any event, he describes the market as "19 PE", which, of course, sounds anything but cheap. His thesis is that the PE ratios will continue to compress until they reach a historically low level. My view is that we saw those numbers already - the PE compression is likely over.
In his last chapter, he states that even if he is wrong about the state of the market, the lessons he shares are still valuable, and I agree. I don't want to steal his thunder, but Katsenelson shares so many valuable nuggets of advice. His words of wisdom range from very specific ways we can judge the quality of a company, characterize its growth prospects and determine its valuation, but some of the more surprising but truly compelling though uncommonly spoken ideas include turning off business television (I never watch these shows myself), keeping a watchlist of stocks that have great appeal but might be too expensive to own and maintaining corresponding prices where they would offer an appropriate margin of safety, and some very specific advice on how to maintain humility in bull markets and self-confidence in bear markets.
While this may be a "Little Book", I found it big on ideas yet a very easy read. Katsenelson is funny, and he has some terrific analogies. He apologized profusely for the single equation that he included early in the book. Whether one knows very little about investing or a lot, I suspect his readers will benefit from the ideas he shares.
Disclosure: Vitaliy's publicist provided me with a free copy of the book
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