Predicting the Markets of Tomorrow

Just buy the book.

Then read what Rob Bennett posts at his PassionSaving site and what I write at this site.

This is not James P. O’Shaughnessy’s best book. That was “What Works on Wall Street.” It is his most timely. It tells you what you need to know today.”

PassionSaving site

Highlights

James O’Shaughnessy presents a strong argument that the stock market will be hard over the next twenty years. There will be many false signals. Many distractions. But the best approach will be to emphasize Large Capitalization Value stocks, Small Company stocks, Dogs of the Dow and similar strategies following the same kind of discipline that he has advocated in the past. There are lots of details, many related to the fact that investors are humans, not machines indifferent to outcomes.

Details such are volatility are exceedingly important.

James O’Shaughnessy speaks about his personal experience as a mutual fund manager. He invested as he had learned from “What Works on Wall Street.” Those that stuck with him made money. Those that left, much too often, discovered that they really did need a professional’s hand holding. Many who left lost much too much money. They had book knowledge, but not internal conviction.

What He Got Wrong

James O’Shaughnessy recommends rebalancing as do most of today’s advisors.

I have shown repeatedly that rebalancing is a benefit only if there is no meaningful way to measure valuations. I have shown that P/E10, dividend yield (overall) and Tobin’s q all allow us to benefit from valuations.

Even worse, rebalancing reduces the long term return of a portfolio. It adds a very small amount of risk reduction at a huge sacrifice on the upside.

How We Can Help

Rob Bennett focuses on the human element at his PassionSaving web site. He goes into much more depth than James O’Shaughnessy.

I have focused on retirement portfolios. This leads me to emphasize the high quality, high dividend payers among the Large Capitalization companies. I also go into more depth as to the needs for those wishing to retire early. Just being able to retire early gives you the benefit of financial independence. People have to treat you right.

Have fun.

John Walter Russell
August 5, 2007