Active Value Investing: Making Money in Range-Bound Markets (Wiley Finance) [Hardcover]

Vitaliy N. Katsenelson (Author)

Book Description

Publication Date: September 28, 2007

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.

Editorial Reviews

Review

Katsenelson's is straightforward enough to keep a rookie investor engaged, and in-depth enough to retain the interest of old pros, which makes this a great book for those of all skill levels. He does a comprehensive job of reviewing the market's past, projecting its potential future, and developing a case for why value investing will shine as the market stagnates. He combines historical and financial analysis, along with engaging stories from his experience as a professional investment manager.--Chuck Saletta, Motley Fool

This book should be considered a practical compendium of modern finance, leaving no stones unturned on your way to better investments. Katsenelson’s passionate, witty and accessible writing expertly takes the reader through his original framework for valuing stocks in range-bound markets. A student of history and an overzealous stock picker, the author entertainingly illustrates every concept with a collection of real-world examples, demonstrating an impressive breadth and depth of understanding of what makes stocks move!--J.P. Tremblay, CFA

"How to adapt value investing for "range-bound" markets." (Financial Times, Tues 26th February 2008)

"The new Benjamin Graham is Vitaliy N. Katsenelson. I highly recommend Katsenelson's book, Active Value Investing: Making Money in Range-Bound Markets (Wiley, 2007). I like to think the old Ben Graham would have recommended it, too."--Forbes

From the Inside Flap

For the next dozen years or so, the U.S. stock market will be a wild roller-coaster ride—setting all-time highs and multi-year lows in the process. While the twists and turns of this ride are still to be written by history, the long-term, sideways "range-bound" trajectory has already been set by the eighteen-year bull market that ended in 2000. When the dust settles, only those who adapted their investment strategies to this range-bound market will have captured any meaningful profits.

Nobody understands this situation better than author, educator, and respected investment manager Vitaliy Katsenelson. And now, with Active Value Investing, he'll reveal how to achieve unparalleled success in these conditions by taking traditionally profitable and fundamentally driven strategies—developed during the eighteen-year bull market—and modifying them for use in range-bound markets.

This is not just another value investing book. It is a practical guide that contains innovative insights and timely techniques that will improve your investment endeavors during a time when others will be paying with their returns, and with lost time, for the valuation excesses of prior bull markets.

In the first part of the book, Katsenelson examines the historical performance of U.S. markets over the past two centuries and discusses what has caused prolonged bull, bear, and range-bound markets. He then looks at the emotions that have dominated each of these markets, why there is a high probability that a range-bound market has descended on us, and what you can do to forecast how long this market will last.

Part Two of Active Value Investing addresses practical application of this concept. Here you'll become familiar with performing proper stock analysis—from identifying what constitutes a good company to determining the stock price at which these companies become worth owning—and implementing an active investing strategy during range- bound markets. You'll also be introduced to the Quality, Valuation, and Growth (QVG) framework, which lies at the core of this approach. Rounding out this section are detailed discussions of the buy/sell process as well as complete coverage of important risk and diversification issues.

Range-bound markets may be difficult to invest in, but with Active Value Investing as your guide, you'll quickly learn how to squeeze real profits out of a difficult market full of exhilarating highs and surprising lows.

See all Editorial Reviews

Product Details

• Hardcover: 304 pages
• Publisher: Wiley (September 28, 2007)
• Language: English
• ISBN-10: 0470053151
• ISBN-13: 978-0470053157
• Product Dimensions: 6.3 x 1.1 x 9.3 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 4.4 out of 5 stars  See all reviews (45 customer reviews)
• Amazon Best Sellers Rank: #575,114 in Books (See Top 100 in Books)

More About the Author

VITALIY N. KATSENELSON, CFA, is Chief Investment Officer at Investment Management Associates. Whilehis primary focus is on discovering under-valued companies for his clients, he is also known for his uncommon common sense, which he has regularly expressed in articles in the Financial Times, Barron's, Bloomberg Businessweek, the Christian Science Monitor, Institutional Investor, and the New York Post, among other outlets. He speaks frequently to investment groups around the world, and was most recently profiled in Barron's in September 2009. Previously, he was an adjunct faculty member at the University of Colorado Graduate School of Business, and he is also the author of Active Value Investing.

Most Helpful Customer Reviews

178 of 210 people found the following review helpful

1.0 out of 5 stars A complete waste of time... January 23, 2008

By Christopher Jackson

Format:Hardcover

One of my only posts because few are so bad that they compel me to write a review.

This is easily the worst book on investing I've ever read. I actually experienced a sense of agony in reading this book knowing I could be reading something better. It should not even be called a value investing book.
The author suggests finding companies that have low P/E's, that are fundamentally sound. He gives a very brief, useless description of what soundness is and is not. In fact his method for determining a stock's value as a whole is very shallow. I felt like he is just a journalist describing the surface of things. He mentions nothing of where to find a companies fundamentals, but briefly describes how they should look "strong, good, upward-trending", etc.

The worst of all is that I have a firm suspicion the he had his close friends and colleagues give him such high reviews. For example take a look at all the reviews. Most read just like the editors review of the book. Very long and touting promise. Next he gave the book to several of the reviewers and asked them to review it. They actually mention that in their reviews. The result being that all the longer reviews sound the same as if he gave them some press release to put their own spin on without reading the book. And lastly, a good number of reviewers come from the city where he teaches at, Denver. Most likely associates of some sort just doing him a favor.
If you think that unlikely, Google the book. You'll find the same reviews of the book from Amazon on other investors websites.

Bottom line. Don't buy this book. I'll be putting mine on here for .01 cent if you really must have it.

30 of 35 people found the following review helpful

4.0 out of 5 stars An Insightful Perspective to Investing November 4, 2007

By Hesham Gad

Format:Hardcover

Anyone fortunate enough to have invested during the bull market that began in 1982 will find easy to say "buy and hold forever." Indeed, for almost twenty years, the market had one general direction - up, and anyone who bought and forgot did well for nearly 18 years. Warren Buffett has described the bull market that began in 1982 as a period unlike any other for the markets and that it is highly unlikely or quite some time before the U.S. markets experience that again. And although Buffett is famous for his "our favorite holding period is forever" line, it wasn't until later in his investing career - when Berkshire's capital was enormous - that this approach really made the most sense for him and Berkshire Hathaway.

Consider that from 1983 until 1999, the average annual return on the S&P 500 was 15.7%, assuming the reinvestment of dividends. A similar return like this for the Dow Jones beginning in 2008 would mean that the Dow would be trading over 139,000 in 2024!

It is in this context that I found Active Value Investing: Making Money in Range Bound Markets by author and portfolio manager Vitaliy Katsenelson an interesting and insightful read on understanding the long mood swings of Mr. Market. One should not assume that the word "Active" in the title to suggest market timing - this is the last thing Vitaliy is concerned with. In fact he readily admits that trying to time the market is a fools game. Instead his focus on using fundamental valuation techniques - discounted cash flow analysis, price to earnings models, and margin of safety - to take advantage of range bound markets.

Any serious participant in the stock markets is well aware that markets trade in in ranges some periods longer than others. During the 16 year period beginning 1966 and ending in 1982, an investment in the Dow Jones index in 1966 would have been worth about the same sixteen years later. Hovering around 1000, the Dow remained around 1000 in 1982. Whatever dividends you earned were wiped out by inflation during that time. A simple buy and hold approach during that time would have produced an annual rate of return of zero percent. Yet during that sixteen year period occurred one of the most opportunistic buying opportunities in the U.S. Beginning in 1974, as Buffett so famously quipped, "I was selling at 3 times earnings to buy stocks at two times earnings."

Active Value Investing discusses how the prudent use of fundamental analysis allows to take advantage of such opportunistic times in the market. Focusing on the only three variables that really matter in a business - value, quality, and growth - investors can learn how intelligently exploit Mr. Market's mood swings. Unlike most great investing books that are focused on the buying process, Active Value Investing takes a very close examination of the selling process, something I find to be the most misunderstood area of investing. Make no mistake, if you can't buy at the right time, knowing when to sell won't mean much. Not only does Vitaliy walk you through his framework of knowing when to buy stocks, but he also takes a deep look at selling stocks, a topic not given enough discussion among value investors. Active Value Investing looks to change all of that.

We all realize that the markets are never a smooth ride and that market timing is mere folly. The key to taking advantage of the market's swings - buying on the stalls and selling on the surges - is to focus on valuation of individual securities. Indeed it is the price in which you buy that ultimately determines your return when you sell. Understanding what to look for in businesses and how to value them is an absolute must if you hope on succeeding in the markets for a meaningful period of time. Active Value Investing helps steer you in the right direction.

20 of 24 people found the following review helpful

2.0 out of 5 stars Not bad, but not good either. Two stars April 13, 2008

By A_2007_reader

Format:Hardcover

Vitaliy Katsenelson's book is written in three sections: a background section, a section on active value investing strategy, and a section on applying his active value investing strategy. It's quite a friendly read which any reader with a basic knowledge of investing terms could make sense of and learn from it. The writing style is colloqial however, and the author uses pop culture references to illustrate his points. An example of bad taste is a paragraph that attempts to use Steve Irwin's tragic death as an analogy for risk and risk management strategies.

Despite these qualms, the content of this book has shining moments. The Active Value Investing strategy, while not necessarily novel, puts together many important lessons on investing in a very simple and understandable way through his QVG (Quality, Valuation, and Growth) framework. The author uses simple metrics like "P/E" to build a framework for analysing companies. In view of the recent accounting irregularities associated with the "E" in P/E, however, this one dimentional metric may be too simplistic for anybody but the most novice investor. Still, it's a start.

The last third of the book shares with the reader a lot of the author's own thoughts on buying, holding, and selling stocks. Probably the most interesting chapter to see was a chapter on "selling" and how to develop a strong sell strategy. (Useful for traveling salespeople)

Two portions of Vitaliy's book - his active value investing strategy and his various chapters on practical application - would probably be enough for a strong entry into a sea of investing books usually heavy on promises and light on actual content. Basically, the author's idea is that markets typically have two long-term "trends" and they are not bull and bear. Instead, he believes there are bull markets (the last of which finished in 2000) and flat, range-bound markets. Between 1960 and 1980, major indexes moved up and down and up and down but over the entire twenty year period there was little or no appreciation in either the Dow Jones or the S&P 500. He believes that in 2000, we started yet another one. His chapters on range bound markets are interesting and provide some very enlightening analysis of the psychology which drives long-term trends in the markets.

All-in-all, Active Value Investing: Making Money in Range-Bound Markets is an enlightening book for anyone starting out in investing. That said, some of the writing can drag and Vitaliy's strategy may feel a bit "dumbed down" for more experienced investors. Furthermore, statistically a passive index has been found to beat active investing around 60% of the time, going back to the turn of the last century. A better book on investing would be Jeremy J Siegel's "Stocks for the Long Run".