Vitaliy N. Katsenelson - The Little Book of Sideways Markets: How to Make Money in Markets that Go Nowhere

Contents

The Little Book of Sideways Markets

More Praise for The Little Book of Sideways Markets

The Perma Bears, like Dr. Nouriel Roubini, are always looking down as they wait for the Apocalypse and a collapse in stock prices. The Perma Bulls, like most Wall Street strategists, are always looking up as they wait for the next New Paradigm and Long Boom. By contrast, Vitaliy Katsenelson lies on his side and sees a sideways market. With lively anecdotes and substantive evidence, Vitaliy teaches investors how to navigate and profit from a do nothing market. Run, dont walk, to read Vitaliys pearls of analytical wisdom!

Doug Kass, Seabreeze Partners Management Inc.

Vitaliy Katsenelson has combined analytical rigor, market history, and common sense to produce a valuable, highly readable guide for investors seeking to navigate the investing environment of today and the years to come.

Michael Santoli, columnist, Barrons

And to think we thought sideways markets were impossible for investors. Vitaliy convinces us otherwise, with the most important lesson ever: Know when to sell!

Herb Greenberg, Senior Stocks Commentator, CNBC

There is a lot of practical wisdom in this book for every investor. My personal favorite is Marry your stocks, but with a prenuptial agreement, which is not only great advice but also sums up Vitaliys own brand of intelligent investing. His is a style that has been informed not just by mathematical analysis, but also his practical experienceof which there are many useful examplesand especially his unique personal history, which informs every page. A worthwhile addition to every bookshelf, both physical and virtual!

Jeff Matthews Hedge Fund Manager and Author, Pilgrimage to Warren Buffetts Omaha

Expresses clearly the simple truths of successful investing today. Katsenelson has written the best book on understanding the dynamics of sideways or range-bound markets.

Kim Shannon, CFA President and CIO, Sionna Investment Managers

This book convincingly reinforces the timeless advice of contrarian value investing. Vitaliy Katsenelson concisely articulates how an investor may better weather the potentially difficult markets that lie ahead.

Rob Arnott, Chairman, Founder, Research Affiliates

The bad news is a go nowhere market. The good news is that this Little Book will show you in a big way how to take advantage to achieve market beating returns.

Robert P. Miles, author, The Warren Buffett CEO

Praise for Active Value Investing

Reads like a conversation with Vitaliy: deep, insightful, inquisitive, and civilized.

Nassim Nicholas Taleb, author of The Black Swan

Little Book Big Profits Series

In the Little Book Big Profits series, the brightest icons in the financial world write on topics that range from tried-and-true investment strategies to tomorrows new trends. Each book offers a unique perspective on investing, allowing the reader to pick and choose from the very best in investment advice today.

Books in the Little Book Big Profits series include:

The Little Book That Still Beats the Market by Joel Greenblatt

The Little Book of Value Investing by Christopher Browne

The Little Book of Common Sense Investing by John C. Bogle

The Little Book That Makes You Rich by Louis Navellier

The Little Book That Builds Wealth by Pat Dorsey

The Little Book That Saves Your Assets by David M. Darst

The Little Book of Bull Moves by Peter D. Schiff

The Little Book of Main Street Money by Jonathan Clements

The Little Book of Safe Money by Jason Zweig

The Little Book of Behavioral Investing by James Montier

The Little Book of Big Dividends by Charles B. Carlson

The Little Book of Investing Dos and Donts by Ben Stein and Phil DeMuth

The Little Book of Commodity Investing by John R. Stephenson

The Little Book of Economics by Greg Ip

The Little Book of Sideways Markets by Vitaliy N. Katsenelson

Copyright 2011 by Vitaliy N. Katsenelson. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com . Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions .

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Library of Congress Cataloging-in-Publication Data:

Katsenelson, Vitaliy N. The little book of sideways markets : how to make money in markets that go nowhere / Vitaliy Katsenelson.

p. cm. (Little books. big profits ; 32)

ISBN 978-0-470-93293-3 (cloth); ISBN 978-1-118-01035-8 (ebk); ISBN 978-1-118-01036-5 (ebk); ISBN 978-1-118-01037-2 (ebk)

1. Stock exchanges. 2. Business cycles. 3. Investments. I. Title.

HG4551.K294 2010

332.63'22dc22

2010042184

To Jonah and Hannah

Foreword

The End of the Debt Supercycle and Sideways Markets

It is common among market analysts to talk of secular (long-term) bull and bear markets, but back in the late 1990s I began to notice that markets didnt necessarily march to a neat and tidy bull or bear tune. In my book, Bulls Eye Investing , I explained that investors should focus on valuation instead of price, particularly when markets seem to tread water (lots of action, no prolonged movement up or down) for an extended period of time. In other words, there was a third type of secular market: the trendless market.

A few years later, Vitaliy Katsenelson came along and started talking about sideways (Cowardly Lion) markets. What a clever way to describe these trendless, whipsaw markets that are terribly maddening to investors. This book is a helpful and easy-to-understand guide to navigating these frustrating periods. You need this guidance here and now, because markets are going to go nowhere for some time.