Research guru and money manager James O'Shaughnessy forced many professional and amateur investors alike to rethink their investment beliefs when he published his 1996 bestseller, What Works on Wall Street. O'Shaughnessy back-tested 44 years of stock market data from the comprehensive Standard & Poor's Compustat database to find out which quantitative strategies have worked over the years and which haven't. To the surprise of many, he concluded that price/earnings ratios aren't the best indicator of a stock's value, and that small-company stocks, contrary to popular wisdom, don't as a group have an edge on large-company stocks. Since the original publication of the book, O'Shaughnessy has publised three revised editions. We offer the Cornerstone Value and Growth strategies from the first edition as well as the VC2 Value Composite strategy from the fourth edition. Today O'Shaughnessy is the Chief Investment Officer of O'Shaughnessy Asset Management.
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Validea used the investment strategy outlined in the book What Works on Wall Street 4th Edition written by James O'Shaughnessy to create our Value Composite Investor portfolio.
O'Shaughnessy's research for the 4th edition of What Works on Wall Street showed that selecting value stocks using a composite of value metrics produced superior returns than using an individual metric. This strategy starts by filtering out the lowest quality stocks in the market. It then selects the least expensive remaining stocks using a composite ranking created using Price/Book, Price/Sales, Price/Earnings, Price/Cash Flow, EV/EBITDA and shareholder yield.