Is it a Bull, Bear or Cowardly Lion Market?

Are we in a bull, a bear, or a cowardly lion market? As we will see, the answer can make a huge difference in your investment portfolio. This week I am at my Strategic Investment conference in La Jolla. About four times a year I take a break from writing the letter and bring in a guest writer. This week Thoughts from the Frontline will have the very distinguished analyst and author Vitaliy Katsenelson.

In his recent book, Active Value Investing: Making Money in Range-Bound Markets (Wiley, 2007), he exhorted investors to fasten their seat belts and lower expectations for the next decade or so. He also provided a strategy for improving returns in this environment, what he calls range-bound or cowardly lion markets. Long-time readers will recognize some themes consistent with my own research, but Vitaliy adds some very interesting twists that I believe will make you think. In today's letter, Vitaliy runs through his analysis of what will happen and provides an overview of how investors can make money in what will otherwise be an ocean of stagnant returns. Warning: the letter will print long, but that is because there are a lot of great charts.

Let me also highly recommend Vitaliy's book, Active Value Investing. I think as you read today's letter, you will get a sense of why I am so enthusiastic about his work. You can get you copy at Amazon.com.

Bull, Bear, and Cowardly Lion Markets

By Vitaliy Katsenelson

For the next dozen years or so the US broad stock markets will be a wild roller-coaster ride. The Dow Jones Industrial Average and the S&P…