Summary of What Works on Wall Street

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Rating

6 Overall

8 Applicability

5 Innovation

6 Style


Recommendation

Individual investors are constantly frustrated by their inability to beat the market. Most portfolios lag behind benchmarks because investors fall in love with sexy stories and chase stocks with high valuations. Such a strategy (if undisciplined buying and selling can be called a strategy) is exactly the wrong tack to take. James O’Shaughnessy painstakingly tracked stock returns over a 45-year period and found that investing in companies on traditional value measures - PE ratios, price-to-sales ratios, and price-to-book ratios - beat the market. Unfortunately for today’s investors, the data for this study runs only through 1996, and misses much of Internet boom, in which traditional measures like PE ratios were abandoned with abandon. Nevertheless, getAbstract.com recommends this clear and insightful book to all investors, especially those newcomers who have to this point been carried along by the market bandwagon, but one day might need a crash course in some time-tested investment strategies.

In this summary, you will learn

  • Why passive investing beats active stock picking;
  • What value and growth measures you can use to assess the value of stocks; and
  • Why emotion frequently gets in the way of logical investing.
 

About the Author

James P. O’Shaughnessy is chairman and CEO of O’Shaughnessy Capital Management of Greenwich, Connecticut. He manages four no-load funds. A regular guest on CNN and CNBC, O’Shaughnessy is author of Invest Like the Best and How to Retire Rich.

 

Summary

The Power of Passivity
Want to beat the stock market? Don’t bother chasing tips or trying to outguess the competition. In fact, don’t even bother to actively manage your money. Passive management beats the market with less risk than is incurred with actively managed portfolios. Investing...

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