ValueXVail 2013 - Vitaliy Katsenelson
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Transcript of 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