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Surviving Another "Lost Decade" in Stocks
Stocks were drifting sideways for a second-straight day Wednesday, which
is no big deal considering the sharp rally since late August.
But it will be a big deal if the market suffers another lost decade, as Vitaliy Katsenelson of Investment Management Associates predicts.
"To
be honest, I have no idea what [the market] is going to do over the
next three weeks. But I think over next 8 to 10 years it will be going
sideways," he says.
Katsenelson's forecast is based on a
relatively simple principle: The market got wildly expensive during the
1982-2000 bull market and needs more time to work off those excesses.
Because P/E ratios are mean reverting, he believes the market will need
trade at below-average valuations, and not just for a few moments as
occurred at the low in March 2009.
"Historically, you don't just
hit below [the average] and jump back," he says. "You spend some time at
below average levels," or around 15 for the S&P 500.
In the
accompanying video, Katsenelson provides some tips for how to make money
in a flat market, as detailed in his latest book: The Little Book of
Sideways Markets. (Yahoo! TechTicker)
Click here to watch the TechTicker video
Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo. He is the author of upcoming The Little Book of Sideways Markets (Wiley, December 2010). To receive Vitaliy’s future articles by email, click here.
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I started reading Gerald Loeb's "Battle for Investment Survival" the other night. Written in the 1930's and updated in 1965, it's precisely how to handle a secular bear market.
If you truly believe the markets will go sideways for a long time, then just keep selling options premium. (with appropriate risk-management measures in place)
My post ended up in the wrong forum. Dollar cost averaging into a flat ten year market will give you a net positive return provided that you make frequent contributions. Monthly is fine. If you are in your twenties your investment choices such as 401k and 503b college savings plans are likely limited to shitty options. Hold your nose and dollar cost average anyway. You will get something out of it. If you are in your twenties then you should invest as much as you can on a regular basis and pray for a growler of a bear market for the next ten years. You will make out like a bandit by the time you are fifty. My parents started at the peak in the 1970's and just kept dollar cost averaging through crisis after crisis. For a decade they lost money, but they made out like bandits through the ninetiees. Have a forty year investment horizon and keep throwing in money monthly if you are twenty. and pray hard for a huge bear market.
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