Investment-management

This book could become the industry standard.

I found the floppy disk accompanying the book unreadable. My local computor builder/dealer/consultant couldn't read it either. My computer kept calling for another disk, which did not come with the book I ordered or with its replacement. The disk seems to herald back to the days of DOS; whatever, I'm lost.

More on the downside, the valueline online survey is unmanageable for me (I got a masters in English and I've been studying and investing stocks for 25 plus years). Determining the average for numerous search fields (market cap., P/E ratio, Price/Book ratio, etc.) that O'Shaughnessy calls for cannot be done with the basic online service. A simple piece of data such as "dividend" or "yield" can be tough to pin down with 7-8 different kinds listed (estimated, quarterly, current, etc.).

The book, in spite of my moronic protests, is praiseworthy. The methods make sense. There is something beautiful about their simplicity - the step by step processes of narrowing down fields in order to determine the best bargains (value) or the best upside potential (growth).

A guiding principle of O'Shaughnessy's argument - the answer to the nagging question of why so many portfolio managers fail - is very simple: they either have no useable plan or they do, but they don't stick to it.

I'm convinced this book has the answer. It's just so damn grueling to apply the principles; a dozen calls and emails to valueline still leave me clueless.

You can even improve on the performance of mutual funds because you can follow their strategy in a more consistent fashion and because you can reduce their strategy to its essential elements. Often even good fund managers are not entirely consistent.

An example of a strategy is: from the stocks with

12 month EPS gain >20% and
26 week % price change>20% and
Last Qtr EPS % chg > 20% and
Valueline Timeliness Rank <=5

Pick the ten stocks with highest estimated EPS growth for next year .

He explains how to do all this in detail and derives some good looking strategies. Risk is taken into account and proves to be a very useful measure of the reliability of a strategy.

You can use the same techniques to evaluate your broker's recommendations, and the advice from books and newletters. Do they follow a strategy or is it just random tips and hunches?

He also showed how various fund managers changed strategy quite radically without announcing it eg Magellan in the early 1990s.

There are some good tips on how to avoid common traps when using quantitive strategies eg using single variable strategies.

He also explores combining various strategies and shows how to build your own.

He did not really prove his theory which is that noone really makes money by individual stock picks, it is all strategy.

As a final caveat, if you don't like numbers you will not like this book. But it seems you cannot succeed in investment without being very friendly with numbers.

FinancialNeeds.com