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Active Value Investing: Making Money in Range-Bound Markets


Praise for Active Value Investing

"This book reads like a conversation with Vitaliy: deep, insightful, inquisitive, and civilized."
—Nassim Nicholas Taleb, author of The Black Swan

"Vitaliy Katsenelson walks you through his thought processes in constructing an active value portfolio. There is not enough discussion in value investing circles about when to sell stocks, and this book advances that subject. A good balance between theoretical discussion, real anecdotes, and commonsense observations."
—David Einhorn

"Active Value Investing clearly highlights that the stock market is not a smooth trend; rather, it has periods of surge and stall. Katsenelson explains range-bound markets and emphasizes that 'valuation matters'—the valuation paid for stocks impacts the ultimate return. Range-bound markets especially require an unconstrained process of analysis to identify undervalued securities, and Katsenelson delivers a much-needed framework to achieve superior returns."
—Ed Easterling, President, Crestmont Research, author of Unexpected Returns: Understanding Secular Stock Market Cycles

"A delightfully documented and detailed deconstruction of buy-and-hold dogma. A must-read for any open-minded, thinking investor—professional or individual."
—Donald Cassidy, President, Retirement Investing Institute, and author of It's When You Sell That Counts

"Active Value Investing offers a rare combination of focus on value of underlying companies with appreciation for the effect of market dynamics on portfolio performance. Investors who understand both have the flexibility to succeed in a variety of markets. Katsenelson has the gift of packaging expert financial insight in an entertaining and educational package."
—Aaron Brown, Executive Director in Risk Methodology at Morgan Stanley author of The Poker Face of Wall Street

"Vitaliy has crafted a valuable assimilation of the primary market metrics that will benefit the active trader and long-term investor alike."
—Todd Harrison, founder and CEO, Minyanville Publishing & Multimedia, LLC

"Active Value Investing has the hallmarks of all great investing books—easy to read, humorous at times, and, most of all, it demonstrates Vitaliy's investing process in terms accessible to the novice and expert alike. Despite its title, this is a book for bull, bear, or range-bound markets and will be highly recommended to our newsletter subscribers."
—Philip Durell, advisor, The Motley Fool Inside Value

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

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-Bound Markets.

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-Bound Markets.

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 Flow Analysis.

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 of Process 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—International Investing.

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

Same Difference.

Location of Corporate Headquarters Abroad May Not Constitute a Foreign Company.

You Are Exposed to More Foreign Political Risk Than You Realize.

What About the United States?

Pick Your Comfort Zone and Go from There.

Don’t Confuse a Fast-Growing Economy and a Good Investment.

Currency Risk.

How Much Is Too Much?


Chapter 12: Sell Process—Make Darwin Proud.

Selling When Stock Price Has Gone Up.

Selling When Fundamentals Have Deteriorated.


RISK AND DIVERSIFICATION: Introduction to Risk and Diversification.

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.