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The Little Book of Sideways Markets: How to Make Money in Markets that Go Nowhere Hardcover – December 7, 2010
"Enlightenment Now: The Case for Reason, Science, Humanism, and Progress"
Is the world really falling apart? Is the ideal of progress obsolete? Cognitive scientist and public intellectual Steven Pinker urges us to step back from the gory headlines and prophecies of doom, and instead, follow the data: In seventy-five jaw-dropping graphs, Pinker shows that life, health, prosperity, safety, peace, knowledge, and happiness are on the rise. Learn more
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“This is a book you can understand and have fun with no matter what level of experience you have. Even advanced investors have to refresh themselves in the basics once in awhile. Read it . . “ (Financial Tides and Seeking Alpha)
“This book isn’t about market timing. It’s about winning in a flat market — the sort of knowledge that can make you a lot of money. In his book, Katsenelson reminds us that investing returns come in three ways: more earnings, more dividends, or a higher price-to-earnings ratio. I’m a dividend guy, so Katsenelson had me when he declared that ‘the importance of dividends quadruples in sideways markets, where they historically represent more than 90% of total return.’ Amen, brother! There are a lot of ‘little books’ out there, but The Little Book of Sideways Markets offers excellent advice, reads easily, and will help you sidestep a potentially frustrating market.”(Motley Fool)
“Offers guidance on the discipline of selecting stocks, as well as wisdom on the challenges of knowing when to sell. Does a masterful job of taking a highly technical subject and explaining it in easily understood terms. His explanation of discounted cash flow analysis to determine the right price for buying an asset is the best, and the most entertaining.” (NAPFA Advisor)
“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)
From the Inside Flap
With the stock market turning into a roller-coaster ride of all-time highs and stomach-churning lows, where does that leave your portfolio? Pretty much back where you started in 2000. Which may 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 investor and author Vitaliy Katsenelson shows you how to survive a stagnant market that's neither bull nor bear but instead what he calls a cowardly lionit displays occasional bursts of bravado but is ultimately overcome by fear.
Katsenelson, known for the commonsense principles he has written frequently about in the Financial Times, Bloomberg Businessweek and elsewhere, decodes the theories and cuts to the chase with practical and timely strategies for how you can survive and thrive during a sideways marketa state of affairs, by the way, we should expect for the next decade. He'll show you:
- Why your investments will stall in neutral and what to do about it
- Why, despite its place as the Rodney Dangerfield of investing, you should treat mean reversion with respect
- Why Tevye was a rich manand what you can learn from his purchase of Golde, the cow
- How the dire state of economic affairs in China and Japan will impact your investments, and what to do about it
- The three crucial concepts of value investingQuality, Growth, and Valuation
- How focus on process, boring as it may sound, leads to success
- Why you should become a born-again value investor
- How to break bad habits and find, buy and sell stocks in a sideways market
Making progress in a sideways market is difficult, but the lively and entertaining Little Book of Sideways Markets will help you triumph even when the market is stalled.
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His sideways market thesis is that following a secular bull market, such as we had in the 90s, we are doomed to spend a number of years in a sideways market. It wiggles around, but ends up roughly where it started. He does some calculating, not to predict the precise length of the sideways market, but to give the reader an idea of the factors involved. (If his assumptions are correct, the current sideways market has another 11, or maybe14 years to go. I don't have a lot of faith in the precise numbers he uses, but neither does he, so that's no criticism.) The central reason for making the sideways market argument isn't to pinpoint the length of the market move, but to convince the reader that, in such a market, it's tough to make money just by being in the broad market, or by being a buy-and-hold investor. We can however, make money by opportunistically buying individual stocks when they are cheap, and selling them when they are fully valued. Don't time the market, but do time individual stocks.
The middle of the book (chapters 4-12) is a tutorial on value investing. I don't think it contains anything that well-read investors won't have come across elsewhere, but it is put together nicely, and pays attention to a few ideas that are often ignored or underplayed in the value investing literature. Specifically, there is a nice piece on the importance of focusing on process, rather than outcome (an idea popularized, though by no means discovered, by Nassim Taleb) and a chapter on ways that poor management can destroy free cash flow. Value investors sometimes treat free cash flow as the holy grail of investing and valuation, ignoring the ways management has historically handled the cash, either creating or destroying value.
The book concludes with a group of largely unrelated chapters ranging from a mildly behavioral-finance influenced pep-talk to a critique of the Chinese economic model. A few of these are interesting, a few are a waste of paper and ink (chapter 13, I'm looking at you).
My biggest criticism of the book is that I'm not quite sure what the target audience is. The first few chapters are a bit on the technical / numerical side for a rank beginner, and don't contain enough data or a strong enough argument to really convince a more experienced investor who doesn't already agree with the thesis. Yes, the pattern of bull market followed by a range-bound market has occurred a few times over the last 100 years, but the ranges and lengths have varied a lot, and I saw no compelling reason to think that a bull market couldn't start from a higher level than Katsenelson thinks it could, that we couldn't have another bear market (such as the one post-1929), or any of a number of other possible scenarios. Investors often make the mistake of thinking that this time is different, but they also make the mistake of thinking that the future will be just like the past. In the end though, I don't think that the sideways market thesis is important, beyond the idea that we can make money when the overall market isn't moving strongly up or down. I've been following a method similar to the one he advocates here since the late 90s, and have experienced success with it personally, so I didn't need much convincing.
The value investing tutorial portion of the book appears to be written for the true beginner, using very simple and non-technical examples, but I don't believe it goes quite far enough to be the sole resource of a new investor. Where should an investor go to get the sort of information on a company that Katsenelson recommends using? How do you read a cash flow statement, or a balance sheet? How do you read a 10-q, or a 10-k, or a proxy statement? Should you be reading these at all? I think it's a rare investor who knows these things, but still needs Katsenelson's farmer-buying-cows example to figure out why free cash flow is important.
My primary question before buying the book (which I could not, at the time, answer) was what this book would offer to someone like myself, who had already read Katsenelson's previous book, Active Value Investing. The answer is "very little." I loved Active Value Investing. I wasn't entirely convinced by his range-bound-markets hypothesis, which has been re-named "sideways markets" in the current book, but thought that the meat of the book, on value investing techniques, was great. Most of the current book is an abbreviated version of Active Value Investing, with liberal use of the cut and paste function. Large chunks of the books are identical. Many chapter headings are the same. The last few chapters are new, but not particularly useful, and most of their content will be familiar to anyone who reads Katsenelson's blog. If this Little Book were his first effort, I would certainly recommend it to the intermediate investor. Too much knowledge is presumed for this to be useful to the novice, and an experienced investor is unlikely to find anything both new and useful. It is not his first book though, and it is, in almost every way, inferior to his first book, Active Value Investing. Read that instead.
I liked his analysis of stories involving the main character in Fiddler on the Roof. It reminds you that intelligent investing is not merely a "bonus." It is something we must do to protect our wealth and also grow it for the next generation.
The primary reason for me giving 5 star rating - very neat summary of value investing concepts and concepts like P/E compression, value of using relative measures than price, effect of rising tide etc. Could finish the book in few hours over two days - Nassim Taleb was right that the book reads like a conversation - never boring. I will definitely look forward to next book from this author.
Note: I was hesitant to buy the book as I did not have great opinion about this Little Book series. The book was rated by only one person. I did not like The Little Book of Common Sense Investing by John C. Bogle even though it is highly rates. Another one was written by Ben Stein about whom I do not have a great opinion after I heard him on TV multiple times (Pls note that I have not read his little book). I tried a sample chapter on Kindle and still was not convinced.
Finally bought the book by looking at Nassim Nicholas Taleb's comment and rating on Mr Vitaliy's previous book. More than money I was worried about time lost in reading an average book.