Are We Still in a Sideways Stock Market?”

Posted on February 21, 2016 by Dr. David Edward Marcinko MBA

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Are we there YET!

vitaly[By Vitaliy Katsenelson CFA]

In 1976 the Eagles came out with their most successful album, Hotel California, featuring the eponymous single. That song became their claim to fame. Over the next almost four decades the Eagles performed thousands of concerts and they wrote a lot of new songs, but you can’t see yourself going to an Eagle’s concert and not hearing “Hotel California.”  They performed “Hotel California” at every concert and maybe more than once at some. I don’t have the fame the Eagles do, nor do I entertain for a living (unless you call this entertainment).

But, I do feel a little bit like the Eagles when I talk about sideways markets. Let me explain.  I wrote Active Value Investing in 2007, and I followed up with a simplified version, The Little Book Of Sideways Markets, in 2010. Since the books came out, I have given hundreds of interviews and presentations all over the world on the subject.  And just as the Eagles grew sick of playing “Hotel California,” I am sick of sideways markets. When I do interviews now, I politely ask the interviewer to stay away from the topic of sideways markets, as it really bores me.

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Bull markets

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Now, recently I’ve received emails form loyal readers and reporters asking“I am attaching an article I wrote for Institutional Investor magazine in April 2013 that answers this question.  And if you want to peer deep into the entrails of sideways markets, read this very lengthy article I wrote for John Mauldin’s (must-read) Outside the Box newsletter.  IMAGE Very little has changed since I wrote this article (or the books).

Okay, the Donald and a Democratic Socialist are the lead contenders for the presidency of the US, but otherwise the framework I discussed in the article is much the same.  I could have written the article today, since the data points I used haven’t fundamentally changed – they’ve only gotten more extreme (despite the recent sell-off). The law of mean reversion (i.e., high valuations lead to lower valuations and high profit margins lead to lower profit margins) is still intact.

P.S. Lately I’ve been travelling more than usual.  I just came back from a two-day trip to San Diego, where I attended the Qualcomm analyst investor day.  I could have watched it online (I usually do), but Qualcomm is one of our largest positions and I wanted to be physically present to get a visceral feel for the management.  I’m glad I went.  I will be spending this week in Miami, attending one of my favorite investment conferences (and this time I have a hotel reservation).

Assessment

In late February a small group of my very close value investor friends is getting together in Denver.  First we’ll visit a few companies, then we’ll ski a few days in Vail and, most importantly, share and debate investment ideas until the wee hours.  We had a similar gathering in Atlanta a few months ago – it was absolutely amazing.

Conclusion

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