Today’s OTB features an excerpt from my friend Vitaliy Katsenelson’s recently published The Little Book of Sideways Markets. Vitaliy is CIO at Investment Management Associates, a value investment firm in Denver, and he is a prolific and engaging writer (you can find and subscribe to his articles at http://ContrarianEdge.com). I had the pleasure of writing the foreword to Vitaliy’s book, and here is a brief excerpt:
“Markets go from long periods of appreciation to long periods of stagnation. These cycles last on average 17 years. If you bought an index in the United States in 1966, it was 1982 before you saw a new high – that was the last secular sideways market in the United States (until the current one). Investing in that market was difficult, to say the least. But buying in the beginning of the next secular bull market in 1982 and holding until 1999 saw an almost 13 times return. Investing was simple, and the rising markets made geniuses out of many investors and investment professionals.
“Since early 2000, markets in much of the developed world have basically been down to flat. Once again, we are in a difficult period. Genius is in short supply.
“ ‘But why?’ I am often asked. Why don’t markets just continue to go up, as so many pundits say that “over the long term” they do? I agree that over the very long term markets do go up. And therein is the problem: Most people are not in the market for that long – 40 to 90 years. Maybe it’s the human desire to live forever that has many focused on that super-long-term market performance that looks so good.
“In the meantime, we are in a market environment where investors have to be more actively engaged in their investments than before during a bull market when the rising tide lifted all ships. The Little Book of Sideways Markets is a life preserver that will help you navigate these perilous waters. Wear it well and wisely.”
In the excerpt that follows, Vitaliy explains the whys and wherefores of bull, bear, and sideways markets.
Long-time readers of Outside the Box are familiar with the name of James Montier, who is now with GMO in their London office. Today, James, with his usual acerbic wit, takes on the notion of the "New Normal" and offers us a defense of the "Old Always." James is a value investor and sees mean reversion as still alive and kicking, where some proponents of the New Normal think we should throw out all of the old aphorisms. While I am in the New Normal camp, I also agree with James. This makes for some quick and thought–provoking reading.
James Montier is a member of GMO's asset allocation team. Prior to that, he was the Co-Head of Global Strategy at Société Générale and has been the top-rated strategist in the annual Thomson Extel survey for most of the last decade. Montier is the author of four market-leading books, including the recent The Little Book of Behavioral Investing: How not to be your own worst enemy (Little Book, Big Profits), for which I wrote the forward.
It is good to be back in the swing of things, and this looks to be an exceptionally full year for your humble analyst, but one that offers us both opportunity and some times for enjoyment with friends. I am nearly always optimistic at this time of year, and it seems even more so this year. My annual forecast issue, to be published next Friday, will reflect some of that optimism. The future is showing some bright spots here and there. Now let's enjoy some wisdom from James.
Your putting his sunglasses on analyst,