Investing In Range-Bound Markets: An Interview With Vitaliy Katsenelson

Barron's have just published the delayed release free-access copy of their interview with Katsenelson over at Smart Money.

Katsenelson is becoming rather well known for what he calls his Active Value strategies. He has written a book on his methods (Amazon link) and also writes a blog with plenty of archive material over at ContrarianEdge.

Whilst I'm not a huge believer in being able to beat the market through stock picking (without superior skills and access to information) and certainly not by giving your money to an active manager, his Active Value ideas make good sense.

Katsenelson is convinced we have entered a range-bound market and will remain here for some time. Hence his enthusiasm for Active Value - which he explains in the interview.

He also suggests that some investors are falling into a relative value trap:

In today's environment, investors should favor absolute-valuation tools, like discounted-cash-flow analysis or breakup analysis, as opposed to relative-valuation analysis -- i.e., Wal-Mart is cheap at a P/E of 14, because it used to trade at 45. Relative valuation is a backward-looking tool, and anchors on valuations that we'll not see again for a long time. That will lead investors into a relative-valuation trap, and lead to overpaying for stocks.

Wise words if markets end up remaining stagnant for some time and his range-bound prediction becomes reality.

He also talks about how Margin of Safety has never been more important in stock choices. Something no one should leave home without.