Sunday, June 29, 2008
A Secular 'Range-Bound' Stock Market? Vitaliy Katsenelson's Thesis
Professional investor and author Vitaliy Katsenelson argues (compellingly, in my opinion), that we are in the midst of a secular (i.e., longer than five years) "range-bound" market in stocks in the U.S., one that began with the end of the 1982-2000 secular bull market and one that will likely last about as long, if history is a guide. During this secular range-bound market, there will be cyclical (i.e., shorter than 5 years) bull and bear markets, but at the end of the secular range-bound market, major indexes will likely be about where they were when it started in 2000 (mainly due to multiple compression, i.e., market average earnings multiples will be significantly lower at the end of the range-bound market than they were at the beginning of it -- see the graphic above) . Katsenelson fleshes out his thesis in the first 31 slides of this PDF presentation (the rest of the PDF is his presentation for an individual stock idea). It's worth taking 10 minutes to page through these 31 slides and see what you think. One point I don't entirely agree with in this presentation is Katsenelson's claim that asset allocation will be of little use if we are in a secular range-bound market for stocks.