What Works on Wall Street – James P



What Works on Wall Street – James P. O’Shaughnessy

Highlights:

- Most small cap strategies owe their superior returns to microcap stocks with market caps below $25 Million. These stocks are too small for virtually any investor to buy.

- Buying stocks with low P/E is most profitable when you stick to larger, better-known issues.

- Price-to-sales ratio is the best value ratio to use for buying, market-beating stocks.

- Last year’s biggest losers are the worst stocks you can buy.

- Last year’s earning gains alone are worthless when determining if a stock is a good investment.

- Using several factors dramatically improves long-term performance.

- You can do four times as well as the S & P 500 by concentrating on large, well-known stocks with high dividend yields.

- Relative strength is the only growth variable that consistently beats the market.

- Buying Wall Street’s current darlings with the highest price-to-earnings ratios is one of the worst things you can do.

- A strategy’s risk is one of the most important elements to consider.

- Uniting growth and value strategies is the best way to improve your investment performance.

Chapter One:

- Have a decision making process. “In the realm of ideas, everything depends on enthusiasm; in the real world, all rests on perseverance.”

Chapter Three:

- Don’t datamine, look for relationships where it makes sense for there to be one.

- Look at stocks with > $150 million market cap.

Chapter Four:

- “Order and simplification are the first steps towards mastery of a subject.”

Best Strategy w/risk

- PSR < 1, high rel. str., All Stocks

Best Risk-Adjusted

- ½ in: All stocks, Earnings > previous year, highest rel. str., PSR < 1.5

- ½ in: Large Stocks, more common shares outstanding than avg, price-cashflow ratio < avg, sales 1.5x > avg, highest dividend yields

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