valuexvail 2013 - vitaliy katsenelson

7/28/2019 ValueXVail 2013 - Vitaliy Katsenelson

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Vitaliy Katsenelson, CFA


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Sideways Market Keeps Marching On

2

The bear markets were actually sideways markets

and happened the time


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Market Cycles 101: Secular vs Cyclical

Secular markets last 5 years or longer Cyclical markets last less than 5 years. Take place inside of secular markets.

1966-1982 Secular Sideways Market

Cyclical Markets:

Cyclical

head fakes


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Dow Jones Since 1999


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Market Cycles 101: P/E and Es

E P/E Start at P/E End at P/E Returns

Bull Markets Low HighAdding 2 positives = great

returns

Sideways Markets High LowNet-net earnings growth is

cancelled out by P/E

decline = a lot of volatility

and no returns

Bear Markets High LowAdding 2 negatives =

horrible returns


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Stock Market is Only Cheap if You

S&P is at 18 times 12 months trailing earningsabove average but not too

expensive. But


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If Profit Margins Can Stay at All Tim High

Earnings are inflated and corporate profit margins are unsustainable. Profitmargins will mean-revert (in this case, decline). Profit margins mean-revert

because capitalism works: higherprofits attract more competition and

earnings decline.


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In the Long Run, Earnings Growth =

GDP Growth 1950 - 2010


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In the Short Run? 1999 - 2012


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S&P 500 Earnings Last 10 Years

= 4

$61

$65

$50

Actual Average 10 Year E

Ex-Crisis Average 10 Year E


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=,9

6= 25

= ,96

= 26

= (& 500 30, 2013)

(& 10 2003 2012)

38%

Stock Market is Very Expensive!!!


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We Are in a Secular Bull Market If:

Profit margins continue to expand or at least maintain current levelunlikely

If you are not confused about the economy, you dont understand it.Charlie Munger, Berkshire Hathaway Annual Meeting 2013

Revenues (GDP) continue to grow at a good pace. Given the exciting macro picture

(China bubble, Japan debt bubble, Europe, QEs )maybe or maybe not.

P/E continues to expandunlikely: past secular bull markets ended at this type of

valuation.


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Sorry, could not spend more time on sideways markets,

but you can read about them in 7 languages:


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ATEA

ATEA (ATEA in Oslo)

6.5 NOK ($1.03b ) market cap

No net debt

Sales 20b NOK (Sweden, Norway, Denmark andFinland)

60% of sales from hardware sales, 20% software, 20%services

Growth 2-3% about market (takes market share)

EBITDA (our approximation): products 3.5%; services7%

Good management set goals, reached them


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Thank You!

You can browse the full version of the sideways market presentation:

http://bit.ly/swpresentation

2008 Value Investing Congress presentation:http://contrarianedge.com/presentation/

Read articles and sign up for emails: http://ContrarianEdge.com
http://bit.ly/swpresentationhttp://contrarianedge.com/presentation/http://contrarianedge.com/http://contrarianedge.com/http://contrarianedge.com/presentation/http://contrarianedge.com/presentation/http://contrarianedge.com/presentation/http://bit.ly/swpresentationhttp://bit.ly/swpresentation

valuexvail 2013 - vitaliy katsenelson

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