Active Value Investing: Making Money in Range-Bound Markets

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

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

Nobody understands this situation better than author, educator,and respected investment manager Vitaliy Katsenelson. And now, withActive Value Investing, he'll reveal how to achieve unparalleledsuccess in these conditions by taking traditionally profitable andfundamentally driven strategies—developed during theeighteen-year bull market—and modifying them for use inrange-bound markets.

This is not just another value investing book. It is a practicalguide that contains innovative insights and timely techniques thatwill improve your investment endeavors during a time when otherswill be paying with their returns, and with lost time, for thevaluation excesses of prior bull markets.

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

Part Two of Active Value Investing addresses practicalapplication of this concept. Here you'll become familiar withperforming proper stock analysis—from identifying whatconstitutes a good company to determining the stock price at whichthese companies become worth owning—and implementing an activeinvesting strategy during range- bound markets. You'll also beintroduced to the Quality, Valuation, and Growth (QVG) framework,which lies at the core of this approach. Rounding out this sectionare detailed discussions of the buy/sell process as well ascomplete coverage of important risk and diversification issues.

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

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Editorial Reviews

From the Publisher
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

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Product Details

  • ISBN-13: 9780470053157
  • Publisher: Wiley
  • Publication date: 9/28/2007
  • Series: Wiley Finance Series, #293
  • Edition number: 1
  • Pages: 304
  • Sales rank: 1,039,184
  • Product dimensions: 6.20 (w) x 9.22 (h) x 1.01 (d)

Meet the Author

VITALIY N. KATSENELSON, CFA, has been involved with the investment industry since 1994. He is a portfolio manager with Investment Management Associates, where he comanages institutional and personal assets utilizing fundamental analysis. He is also an adjunct faculty member at the University of Colorado at Denver, Graduate School of Business. Katsenelson is a regular contributor to the Financial Times, MarketWatch from Dow Jones, and He is a CFA charter holder, member of CFA Institute, has served on the boards of the CFA Society of Colorado, and is currently on the board of the Retirement Investment Institute. Katsenelson received both his bachelor of science and his master of science in finance from the University of Colorado at Denver, where he graduated cum laude. To read articles Katsenelson has written over the years, please visit: or

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Table of Contents


PART ONE: What the Future Holds.

Chapter 1: Introduction: Range-Bound Markets Happen.

Fasten Your Seat Belts and Lower Your Expectations.

Let’s Identify the Animal.

Secular versus Cyclical.

Distinction between Secular Bull, Bear, and Range-BoundMarkets.

Is 100 Years Long Enough?

Stocks Carried the Torch in the Long-Run Marathon.

International Stocks Were Bright Lights, Too.

Will Gold Shine Again?

Gold’s Recently Emerged Competition.

The Deception of the Long Run (Marathon).

Range-Bound Markets Erode Bull Market Returns.

The Long Run for Us May Be Shorter Than We Think.

Chapter 2: Emotions of Secular Bull, Bear, and Range-BoundMarkets.

Bull Market Euphoria.

Bear Market Doldrums.

What Does a Secular Range-Bound Market Feel Like?

Volatility of Bull and Range-Bound Markets.

Chapter 3: Stock Market Math.

Sources of Capital Appreciation: Earnings Growth.

Sources of Capital Appreciation: Price to Earnings.

Sources of Dividend Yield.

Why Range-Bound Markets Follow Bull Markets.

It Is Not Over Until It Is Over.

Chapter 4: Bonds: A Viable Alternative?

Why Not Bonds?

Asset Allocation Role Is Diminished in Range-Bound Markets.

PART TWO: Active Value Investing.

ANALYTICS: Introduction to Analytics: The Quality, Valuation,and Growth Framework.

CHAPTER 5: The "Q"—Quality.

Competitive Advantage.


Predictable Earnings.

Strong Balance Sheet.

Significance of Free Cash Flows.

High Return on Capital.


Chapter 6: The "G"—Growth.

Sources of Growth: Earnings Growth and Dividends.

Past Has Passed.

Future Engines of Growth.


Growth Matters—A Lot!

Chapter 7: The "V"—Valuation.

Tevye the Milkman’s Approach to Valuation.

Review of Relative Valuation Tools.

Absolute Valuation Tools—Discounted Cash FlowAnalysis.

Relative versus Absolute Tools.

Absolute Models Overview.

The False Precision of Math.

Absolute P/E Model.

Discount Rate Model.

Margin of Safety Model.

The Marriage of Absolute P/E and Margin of Safety.

Bring Out the Toolbox.

The P/E Compression and How to Deal with It.

Chapter 8: Let's Put It All Together.

The Added Clarity.

One Out of Three Is Not Enough.

Two Out of Three Is Better, But Is It Enough?


STRATEGY: Introduction to Strategy: The Value ofProcess and Discipline.

Chapter 9: Buy Process—Fine-Tuning.

The Value of the Process and Discipline.

Think Long-Term, Act Short-Term.

Meet Your New Best Friend—Volatility.

Time Stocks, Not the Market.

Cash Is King.

Be Ready to Strike When the Time Comes.

Chapter 10: Buy Process—Contrarian Investing.

Contrarian Is the Name of the Game.

You Don’t Have to Own It.

Be a Myth Buster.

Quantify Everything and Be a Contrarian Headline Investor.

Time Arbitrage.

Finding New Ideas.

Do In-Depth Primary (Your Own) Research and Document It.

Chapter 11: Buy Process—InternationalInvesting.

The World Has Flattened: Hola, Bonjour, GutenTag, Buon Giorno to the Rest of the World.

Same Difference.

Location of Corporate Headquarters Abroad May Not Constitute aForeign Company.

You Are Exposed to More Foreign Political Risk Than YouRealize.

What About the United States?

Pick Your Comfort Zone and Go from There.

Don’t Confuse a Fast-Growing Economy and a GoodInvestment.

Currency Risk.

How Much Is Too Much?


Chapter 12: Sell Process—Make Darwin Prouvéd.

Selling When Stock Price Has Gone Up.

Selling When Fundamentals Have Deteriorated.


RISK AND DIVERSIFICATION: Introduction to Risk andDiversification.

Chapter 13: A Different View of Risk.

What Is Risk?

Properties of Randomness.

The Crocodile Hunter, Randomness, and Investing.

Understand the Linkage Between and Inside QVG Dimensions.

Identify Impact of Randomness on Value Creators.

The Cost of Being Wrong.


Chapter 14: A Different View of Diversification.

Don’t Bet the Farm!

Too Many Eggs or Too Many Baskets.

Mental Accounting and Diversification.

Mental Accounting and Randomness in a Stock Portfolio.

Randomness Could Be Your Friend.

Chapter 15: Conclusion and Implication.

I Could Be Wrong, But I Doubt It.

Bull Markets.

Bear and Range-Bound Markets.


No, I Am Not Wrong.

Appendix—Years to Bull Market.




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Customer Reviews

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  • Anonymous

    Posted February 8, 2008

    Interesting concept

    Never had thought about a range bound market, but author certainly proved it exists with interesting research and why it happens. Provides an excellent insight on steps to take to succeed in this type of market environment. A must read for an investor.

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  • Anonymous

    Posted August 29, 2007

    Read this book to learn to value stocks!

    As a student of finance, Active Value Investing: Making Money in Range-Bound Markets provided me with new insights about the overall market and how to value individual stocks. The book details why the market is going to be a volatile place for years to come and provides a practical approach on analyzing stocks and calculating figures to buy good stocks at low prices and sell when they become overvalued. The book discusses complex models and topics in terms that are easy to understand and follow. Reading this book made me a better investor and I recommend it to anyone looking for a methodical way to determine buy and sell prices for any stock.

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  • Anonymous

    Posted January 19, 2009

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    Posted December 30, 2008

    No text was provided for this review.

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