Stock Picks for the Level-Headed Investor

When buying stocks, it is essential for investors to value process over outcome, says guru James O’Shaughnessy during a recent speaking engagement. This according to a recent Nasdaq article by Validea CEO John Reese. O’Shaughnessy shares a cautionary tale of a client who would knee-jerk when the market rose or dipped, often buying or selling based on emotion rather than on fundamentals. He stresses, writes Reese, how this practice will “get you into trouble, since by the time you want to buy in most of the easy gains have been made and, conversely, once you decide to sell most of […]

James O’Shaughnessy: Knee-Jerk Investing Doesn’t Work

A quantitative investing guru who uses concrete metrics to analyze stocks, James O’Shaughnessy believes that investors get in the way of their own success by reacting emotionally, writes Validea CEO John Reese in this week’s Forbes. The article outlines O’Shaughnessy’s investment philosophy that, to outperform the market, an investor must choose a strategy and “stick to it, no matter what” as well as his belief that most investors lack the mindset that allows them to be successful. Reese explains O’Shaughnessy’s argument that when an investor chooses an active manager, it is essential to understand the underlying stock-picking process and avoid […]

Fundamentally Sound Stocks Win When Recessions Loom

Whether it’s interest rate hikes or China’s slump or US weakness, investors have found a myriad of economic reasons to worry in 2016 — and they’ve expressed their worries by pulling billions of dollars out of stocks. But in his latest for Canada’s Globe and Mail, Validea CEO John P. Reese highlights some new research showing that the best time to beat the market is when economic times are tough. “The research comes from O’Shaughnessy Asset Management (OSAM), which is headed by quantitative investing guru James O’Shaughnessy,” Reese writes. “The group invests using a number of ‘factors’ — that is, […]

The Payoff and Perils of Momentum-based Stocks

Many investors follow momentum-based methods or approaches when investing in equities, but does momentum investing actually work and what are the results? This is the basis for a recent AAII article by Charles Rotblut, CFA, vice president at AAII and editor of the AAII Journal. Relative price strength, which compares the price performance of a security to another security or the overall market or an industry, is one of the most popular ways to identify stocks exhibiting momentum. A higher relative strength, with 100 being the highest, equals more momentum and better relative performance. Since the early 1990s, academics, such […]

Good Strategies Look Beyond Earnings

Whether it’s talk about earnings growth or earnings estimates or price/earnings ratios, stock market news is usually filled with discussions of corporate earnings. But in his latest for Seeking Alpha, Validea CEO John P. Reese says that good investing goes beyond looking at earnings-related metrics. “Earnings don’t always tell the whole story,” Reese writes.  “In fact, oftentimes other metrics can provide an even better gauge of how a company or the market is doing. The Price/Sales Investor strategy I track on Validea.com is a good example. The key variable it looks at is the price/sales ratio – PSR – which […]

Mid Cap Manager’s Rules-Based Method Produces Strong Results

Barron’s reports on mid-cap fund managers Neil Hennessy and Brian Peery, who manage Hennessy Cornerstone Mid-Cap 30. Peery says, “A lot of financial advisors don’t allocate in the mid-cap space, which gives us an advantage.” Mid Caps have outperformed Large and Small Caps over 10, 15, and 20 years, and the Cornerstone Mid-Cap fund has beaten 86% of its peers. Hennessy and Peery take what Barron’s describes as “a fairly strict, rules-based approach to constructing their portfolios.” They annually construct a portfolio in which each stock – selected based on price/sales ratio, annual sales, and rising share price – constitutes […]

O’Shaughnessy: Timeframe Is Most Investors’ Biggest Mistake

James O’Shaughnessy’s What Works on Wall Street is something of a bible for quantitative investors, and in a recent Investors Podcast, O’Shaughnessy talked about what his vast amount of research has taught him. O’Shaughnessy says it is critical to understand human nature if you want to succeed at investing. While his book detailed how dozens of quantitative strategies have worked over several decades, he says he wasn’t worried that disclosing the information would lead to hordes of investors piling into the best strategies, and thus ruining them. He “knew that, human nature being what it is, that they might get […]

When It Comes To Growth Or Value, Have Your Cake And Eat It Too

It’s extremely common to hear investment commentators talk about “growth” and “value” as though they are polar opposites. But Validea CEO John Reese says not to buy that false notion. “When it comes to investing’s great ‘either/or’ – that is, the growth or value debate – you can have your cake and eat it, too,” Reese writes for Canada’s Globe and Mail. “That’s because the great growth versus value debate is, in fact, a false choice. … Confining yourself to either value stocks or growth stocks is only limiting your portfolio’s potential. At certain times, you’ll be able to find […]

Value Portfolio, Meet Big Mo’

Much like a shot of nutrient-rich wheatgrass can add a “power boost” to your morning smoothie, a shot of momentum can add a big boost to your value investing portfolio, Validea CEO John Reese says. The idea of focusing on hot stocks may make value investors, who tend to find bargain-priced stocks amid the beaten-down members of the market, cringe, Reese writes in his latest for Canada’s Globe and Mail. “But value stocks aren’t always falling. Nor are red-hot stocks always expensive,” he says. “While they are often portrayed as polar opposites, value and momentum are really two separate concepts. […]

O’Shaughnessy Emphasizes the Value of "High-conviction" Buybacks Over the Long Term

Jim O’Shaughnessy, O’Shaughnessy Asset Management, says a long-term investor should be buying now, and compares “low-conviction buybacks” (defined as 5% or less) and “high-conviction buybacks” (over 5%) in identifying attractive stocks. From 1987 to 2014, he says, the return on low-conviction buybacks was 12.1% annually (about 1% over return on all large stocks), but the return on high-conviction buybacks was 15.9% annually. Further, he says that the buyers of these high-conviction buyback stocks “were buying their stocks when they were dirt cheap.” Of all buybacks, 70% are low-conviction, according to O’Shaughnessy. Going forward, O’Shaughnessy says investors should be taking a […]

O’Shaughnessy Emphasizes the Value of “High-conviction” Buybacks Over the Long Term

Jim O’Shaughnessy, O’Shaughnessy Asset Management, says a long-term investor should be buying now, and compares “low-conviction buybacks” (defined as 5% or less) and “high-conviction buybacks” (over 5%) in identifying attractive stocks. From 1987 to 2014, he says, the return on low-conviction buybacks was 12.1% annually (about 1% over return on all large stocks), but the return on high-conviction buybacks was 15.9% annually. Further, he says that the buyers of these high-conviction buyback stocks “were buying their stocks when they were dirt cheap.” Of all buybacks, 70% are low-conviction, according to O’Shaughnessy. Going forward, O’Shaughnessy says investors should be taking a […]

Great Pages: O'Shaughnessy On Models vs. Humans

Can a single page of a book change your investment life? We believe it can. Periodically, we highlight some of the Great Pages that have had a great impact on our investment philosophy. Today, we cheat just a bit, looking at two pages in James O’Shaughnessy’s classic “What Works on Wall Street”. O’Shaughnessy talks about why models are better at predicting outcomes than humans are.

OSAM: Microcaps A Better Opportunity Than PE

Over the past decade or so, investors — particularly institutional investors — have focused more and more on private equity as a way to get exposure to small, potentially high-growth companies. But in a recent research paper, O’Shaughnessy Asset Management’s Chris Meredith and Patrick O’Shaughnessy explain why microcap equities in many cases are a more attractive alternative to private equity.