Value Investing In Sideways Markets

Value Investing In Sideways Markets

Value Investing In Sideways Markets

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Here are slides of my updated/revised presentation on sideways markets.  Over the last three months I’ve given talks on sideways markets three times, to CFA Societies in South Florida, New Zealand, and Atlanta.  It is very hard to be excited about the US stock market.  I read that Rich Bernstein, former chief investment strategist at Merrill Lynch, is very optimistic about US stocks; he believes we are at a point similar to where the market was in 1982 – at the beginning of the 1982-2000 secular bull.  After you’ve gone through my slides, you’ll understand why it is so hard for me to share Rich’s excitement.

Stocks were so expensive in 1999 that 12 years of economic growth did not cure the excesses of overvaluation.  In fact, 12 years into this sideways market, valuations are still 30% above the historical average, while in 1982 they were about 30% percent below average!  Also, historically, stocks spent a good amount of time at below-average valuations before sideways market turned into a secular bull market.

Fund Manager Profile: Zhang Hui Of China’s Southern Asset Management

investHistorically, the Chinese market has been relatively isolated from international investors, but much is changing there now, making China virtually impossible for the diversified investor to ignore. Earlier this year, CNBC pointed to signs that Chinese regulators may start easing up on their scrutiny of companies after months of clamping down on tech firms. That Read More

I hear that everyone is bearish, then I recall a line from a movie – would you rather believe me or your own eyes?  Well, my own eyes tell me that the market is up this year, so not everyone is bearish.  Higher taxes and lower government spending (which is good in the long run) are destimulating for the economy, so it is reasonable to expect slower growth going forward.  Then you look at corporate profit margins, which are at an all-time high (see my presentation).  Lower top line growth and declining corporate margins will lead to subpar earnings growth, so stocks are still expensive.  No, I don’t share Rich’s excitement about the stock market.  All that being said, there are stocks that we are excited about, though it is becoming more and more difficult to find them.

I am done with traveling for a while.  Except in early January, when I am going for a few days to NYC, for my brother-in-law’s wedding.  I am ready for the ski season!

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I was born and raised in Murmansk, Russia (the home for Russia’s northern navy fleet, think Tom Clancy’s Red October). I immigrated to the US from Russia in 1991 with all my family – my three brothers, my father, and my stepmother. (Here is a link to a more detailed story of how my family emigrated from Russia.) My professional career is easily described in one sentence: I invest, I educate, I write, and I could not dream of doing anything else. Here is a slightly more detailed curriculum vitae: I am Chief Investment Officer at Investment Management Associates, Inc (IMA), a value investment firm based in Denver, Colorado. After I received my graduate and undergraduate degrees in finance (cum laude, but who cares) from the University of Colorado at Denver, and finished my CFA designation (three years of my life that are a vague recollection at this point), I wanted to keep learning. I figured the best way to learn is to teach. At first I taught an undergraduate class at the University of Colorado at Denver and later a graduate investment class at the same university that I designed based on my day job. Currently I am on sabbatical from teaching for a while. I found that the university classroom was not big enough for me, so I started writing and, let’s be honest, I needed to let my genetically embedded Russian sarcasm out. I’ve written articles for the Financial Times, Barron’s, BusinessWeek, Christian Science Monitor, New York Post, Institutional Investor … and the list goes on. I was profiled in Barron’s, and have been interviewed by Value Investor Insight, Welling@Weeden, BusinessWeek, BNN, CNBC, and countless radio shows. Finally, my biggest achievement – well actually second biggest; I count quitting smoking in 1992 as the biggest – I’ve authored the Little Book of Sideways Markets (Wiley, 2010) and Active Value Investing (Wiley, 2007).
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