Vitaliy N

N. Katsenelson
Katsenelson, CFA
Director of Research
Investment Management Associates, Inc.

ActiveValueInvesting.com
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The “bear” markets were actually range
range--bound markets and happened ½ the time

Copyright Kevin A. Tuttle 2007

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Expansion Growth
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 Contraction Growth
Contraction Decline
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Pre‐Tax Profit Margin = Pre‐tax Profits / GDP

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Source: February 4th, 2008, Barron’s article “Down to the Last Drop of Profit Growth” by Vitaliy Katsenelson

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GDP

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 P/E today 
f
if margins 
23 were at 
average

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not
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True

False

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90% 19%

1.7%
1 7% ½

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relative valuation trap

3.1 1.4

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5 Bull + 5 Bear + 1 Range-Bound 29
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 Bear
Bull 
Bull Range Bound
Range Bound High Inflation
g Deflation

On Par With Stock 
Active Value  Decent (Above Stock  Smaller Decline  Smaller Decline 
Market or Slightly 
Investing Market) Returns Than Stock Market Than Stock Market
Less

On Par With Stock  Zero Price 
Buy and Hold  Market Decline Market Decline
Market  Appreciation + 
(Passive Indexing) Plus or Minus Plus or Minus
Plus or Minus
us o us Dividends
de ds

Zero or Negative 
Better than Stock  Greater Decline than Greater Decline than 
High Beta Growth Price Appreciation + 
Market Stock Market Stock Market
Small Di idends
Small Dividends

On Par with Stock 
Market Plus or 
Considerably Worse  Worse than All  Better than All 
Bonds Minus (Depend On 
than All Above
than All Above Above Above
Direction of Inflation 
and Interest Rates)

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Source: May 5th, 2008, Financial Times  article “Look to the margins when using the price/earnings ratio” 
by Vitaliy Katsenelson
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www.ActiveValueInvesting.com

vitaliy@usa net
vitaliy@usa.net

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