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What Works on Wall Street: A Guide to the Best-Performing Investment Strategies of All Time Hardcover – May 24 2005

5.0 out of 5 stars 1 customer review

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Product Details

  • Hardcover: 366 pages
  • Publisher: McGraw-Hill; 3 edition (May 24 2005)
  • Language: English
  • ISBN-10: 0071452257
  • ISBN-13: 978-0071452250
  • Product Dimensions: 19.8 x 3.4 x 24.4 cm
  • Shipping Weight: 1 Kg
  • Average Customer Review: 5.0 out of 5 stars 1 customer review
  • Amazon Bestsellers Rank: #425,108 in Books (See Top 100 in Books)
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Product Description


"What Works on Wall Street is indisputably a major contribution to empirical research on the behavior of common stocks in the United States." - Financial Analysts' Journal

From the Back Cover


Long-term strategies that have always beaten the markets, and how to make them work for you

What Works on Wall Street, Third Edition, cuts straight to the chase, examining actual historic performance figures to tell you which strategies have provided investors with the best returns, which should be avoided at all costs, and why. Comprehensively updated from its bestselling second edition, this investor classic goes beyond hype and rumor to focus on actual results, and tell you what smart investors are doing now.

Critical praise for previous editions of What Works on Wall Street

“O’Shaughnessy’s conclusion that some strategies do produce consistently strong results while others underperform could shake up the investment business.”--Barron’s

What Works on Wall Street is indisputably a major contribution to empirical research on the behavior of common stocks in the United States….Conceivably, the influence of What Works on Wall Street will prove immense.”--The Financial Analysts’ Journal

“O’Shaughnessy’s latest, What Works on Wall Street, is a serious inquiry into the investment strategies that stand up under long-term scrutiny and is refreshing research for every investor.”--Stocks and Commodities

“O’Shaughnessy’s study is already making waves in the investment community….could well become a classic.”--Smart Money

“James O’Shaughnessy…has enshrined P/S in the investing hall of fame in his superb new book, What Works on Wall Street.”--James K. Glassman, The Washington Post


"What investment strategies have worked over the last 40 years? Ask this man."--Barron's

For many investors, the stock market is little more than a guessing game. The stock market bubble of the late 1990s had many investors convinced that the rules of the game had changed and that this time, it really was different. What Works on Wall Street, Third Edition--with all new data through 2003--shows that it's never different this time. Armed with earlier editions of this book, investors would have avoided the devastation visited on the high risk stocks that were the favorites of investors during the bubble.

What Works on Wall Street, Third Edition, takes the guesswork out of your investment decision-making. This in-depth, updated and data-driven book looks at key strategies and benchmarks that millions of investors rely on to make their investment decisions, and tells you which of these tools have provided investors with the best long-term results.

Acclaimed author and portfolio manager James P. O'Shaughnessy presents factual, unbiased and unexpected findings that prove you can do vastly better than the market simply by consistently using stock selection strategies that have withstood the test of time. Moreover, these five decades of results warn investors to steer clear of some popular investment strategies that are toxic to your wealth.

Expanded to include how various investment strategies perform when used on All Stocks, Large Stocks, Market Leaders and Small Stocks, this new edition of the book also covers all the new research O'Shaughnessy has conducted since the last edition.

Which investment strategies are winners--and which are losers? What factors most reliably indicate that a stock will rise or fall? Are value strategies better than growth? Do small capitalization stocks do better than large? What's the worst-case scenario for the various investment strategies and how long did it take for them to recover? Do these strategies work outside the United States?

What Works on Wall Street answers these questions and outlines a methodical, scientific, and results-based method for making intelligent stock market decisions. "To make the best investment plans for the future, investors need access to unbiased, long-term performance results," O'Shaughnessy writes. And that is exactly what he gives you in this history-making book.

James P. O'Shaughnessy is the Director of Systematic Equity for Bear Stearns Asset Management and a Senior Managing Director of the firm. O'Shaughnessy's investment strategies have been featured in The Wall Street Journal, Barron's, The New York Times, The Washington Post, Investor's Business Daily, The Financial Times, London's Daily Mail, Japan's Nikkei Shimbun Daily, and many other publications worldwide, as well as on NBC's "Today Show," "The Oprah Winfrey Show," CNBC and CNN.

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Top Customer Reviews

Format: Kindle Edition Verified Purchase
I liked the methodical approach to analyzing different investment strategies. He covers not only the best but also the worst.
Highly recommended for the beginner investor.
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Most Helpful Customer Reviews on (beta) HASH(0x9cedc18c) out of 5 stars 28 reviews
34 of 36 people found the following review helpful
HASH(0x9ceefbd0) out of 5 stars New edition, new data. Oct. 5 2005
By JP Reeder - Published on
Format: Hardcover
I work with Jim O'Shaughnessy and I would just like to clarify Mr. McMahan's comment on the data in the new edition. The newest edition of What Works on Wall Street does in fact contain updated data through the end of 2003. The prior editions were through 1994 and 1996, so in addition to new series, monthly analysis and several new chapters there are also seven more years of data.

As a biased observer (I would have omitted my star rating but Amazon won't allow me to post without it) I will refrain from commenting on the other statements appearing here, but should people be interested in judging for themselves please be careful that the edition purchased from Amazon is from May 2005.
23 of 24 people found the following review helpful
HASH(0x9ceefc24) out of 5 stars Book Review from the Aleph Blog Jan. 23 2010
By David Merkel - Published on
Format: Hardcover
This book was really popular in 1996, when it was published. James O'Shaughnessy gained access to the S&P Compustat database, and tested a wide variety of investment strategies to see which ones worked the best over a 43-year period. Unlike most books I will review at my site, this one does not get wholehearted approval from me. My background in econometrics makes me skeptical of some of the conclusions drawn by the book. There are several valuable things to learn from the book, which I will mention later; whether they justify purchase of the book is up to the reader.

My first problem is the title of the book. It should have been titled "What Has Worked on Wall Street." Many analyses of history suffer from the time period analyzed. The author only had access to data from a fairly bullish period. Had he been able to analyze a full cycle that included the Great Depression, he might have come to different conclusions.

My second problem is that he tests a number of strategies that should yield similar results. One of them will end up the best -- the one that happened to fit the curiosities of history that are unlikely to repeat. (That's one reason why I use a blend of value metrics when I do stock selection. I can't tell which one will work the best.) The one that works the best just happens to be the victor of a large data-mining exercise. Also, when you test so many strategies, and possibly some that did not make it into the book, the odds that the best strategy was best due to a fluke of history rises.
Now, what I liked about the book:

1. Combining growth and value strategies produced the best risk-adjusted returns. The growth and value strategies that did the best embedded a little value inside growth, and a little growth inside value.
2. Avoiding risk pays off in the long run, for the most part. If nothing else, one can maintain the strategy after bad years.
3. Value and Momentum both work as strategies. They work best together.
4. He did try to be statistically fair, avoiding look-ahead bias, diversifiying into 50 stocks, avoiding small stocks, and rebalancing annually.

Now, two mutual funds based on his "cornerstone growth" and "cornerstone value" strategies have run since the publication of the book. The value strategy has not worked, while the growth strategy has worked. Go figure, and it may reverse over the next ten years.

Now for those that like data-mining, and don't want to pay anything, review Tweedy, Browne's What Has Worked in Investing. This goes through the main factors that have worked also. Theirs are:

1. Low P/B
2. Low P/E
3. Net Insider Buying
4. Significant Declines in the Stock Price (anti-momentum)
5. Small Market Capitalization

Either way, pay attention to value factors, and if you trade often, use momentum. If you don't trade often, avoid momentum.
14 of 16 people found the following review helpful
HASH(0x9cef1078) out of 5 stars Interesting data, questionable utility for most Jan. 29 2007
By Philip Steinmeyer - Published on
Format: Hardcover Verified Purchase
I am of mixed opinion on this book. I think it's probably a 4-star for me, but likely to be less useful (thus deserving a lower rating) for many others.

First, the good:

The author has access to the Compustat database, generally considered the gold standard for this kind of research, with the cleanest data. Many other databases exclude companies that are no longer active, which can cause HUGE distortions in long term analyses.

He uses this data to test a variety of "hard rules" based strategies. These strategies mainly consist of selecting the 50 best and 50 worst stocks within the database, which has 8000 companies, though in many cases he restricts the tests to the larger stocks, for reasons he outlines (that I accept as valid).

Most of the book consists of chapter-at-a-time analyses of these strategies. In general, he finds superior risk-adjusted returns to certain value-oriented strategies, and also to the use of 1-year price momentum (stocks that had good price movement last year will overperform this year).

Now the bad:

Still, most of these strategies are rather riskier than owning a broad index. And that's WITH the use of 50 stock baskets, rebalanced annually, for each of his strategies. As other reviewers have mentioned, that implies a lot of transactions, far more than most individual investors would do. You could use smaller baskets (fewer stocks), but your risk would be even higher (less diversification).

Later in the book, he moves into multi-factor strategies (i.e. buy the 50 highest stocks where condition A is true, rank-ordered by condition B). On the one had, some of these strategies yield MUCH higher returns than both the single factor strategies and the market as a whole. On the other hand, there's far more room with these strategies for data mining - combining each of his single factor strategies (there would logically be MANY permutations), until he gets the biggest winners, then presenting only those cases.

Also, the primary database he's using (CompuStat) is prohibitively expensive for most individual investors. So if an individual investor want to test permutations of these strategies, that would be difficult. There are some links to websites with accessible data, but I haven't thoroughly investigated those, and doubt their datasets are as good as CompuStat's.

Finally, his multi-factor strategies amount mainly to screens. At their most complex, he winnows the dataset by a small handful of factors (using an absolute test - a stock is IN or OUT), then ranks the survivors and chooses the 50 best according to his final factor. To me, it would make more sense to develop weighted models. Develop a weight for each of 3..N factors, supplemented by perhaps a couple of screens to remove certain stocks with suspect data, then pick the 50 highest. He mentions towards the end of the book that he does the money he manages, but he doesn't include those results/models here for the rest of us.


I know this sounds like an awful lot of criticism. Nonetheless, there was a lot to like about this book for the advanced investor. I have not seen such a detailed study on CompuStat data. His use of the best data, and inclusion of risk statistics is illuminating. And I like his emphasis on hard numeric data/analysis, rather than 'gut feel' that is common in the investment community (i.e. IBM's new product X looks like a hit. I give IBM a **BUY**).

Still, I doubt more than a handful of readers will be able to put his ideas into practice. Still, if you, like me, want to see the numbers on various investment concepts, using reliable data, I would recommend this book.
14 of 16 people found the following review helpful
HASH(0x9cef1060) out of 5 stars Right on the money Nov. 21 2006
By Andrew Nye - Published on
Format: Hardcover Verified Purchase
This book should be read in conjunction with the author's other books. After reading his much simpler, "How to Retire Rich" some 5 years ago or more and with a "wealth" of relatively poor investment experience under my belt it was clear to me that Reasonable Runaways was the way to go. However, there were a number of uncertainties. The basic question the author was answering - how do I maximize a lump sum I have now over the long term i.e. 15, 20 years or more - was not exactly the same as the question I was trying to answer. My problem was - how can I invest regular monthly surplus sums from my salary and maximize the value over the long term. It took me a few months to figure out that I could do it. Instead of rebalancing the entire portfolio once a year I rebalance a 12th part of it every month. I am therefore "rebalancing" i.e. selling what I bought 12 months (plus a day) ago and purchasing the next few stocks that pop out of my Reasonable Runaway's screener that I don't already own. Of course the math is a little convoluted and I am never really going to get the rebalancing absolutely correct but I still end up with a pretty well diversified portfolio that I am regularly turning over on a steady and most importantly unemotional objective basis. When I analyze the performance on a trade by trade basis I find the inevitable reversion to the mean. After a total of 109 trades I have calculated an average annualized performance (for simplicity and tax reasons I extended the holding period to 13 months) of 21%. What is more this average performance is quite stable over the last year or two. I still have a spectacular variance in individual performance but the net result at the end of each year averages out in the healthy positive direction. The more I have been doing this since starting in May 2002 the more I am asking myself why there isn't a massive crowd of investors buying those buys just before me and selling them just before me driving my purchase prices up my selling prices down and my profits into the cellar. The answer is clearly to be found in the author's recent third book "Predicting the Markets of Tomorrow". It appears that there is only a very small crowd of us out there who can stomach the ups and the downs and ride out the course. I've tried to figure out whether the author knows that his strategies when spread out on a rolling basis - as I describe above - give the investor a much steadier and healthier performance and therefore much less emotionally challenging ride. I also suspect that my approach of buying the next stocks down the list on the screener every month means that I am often buying the stocks that most recently arrived on the list and possibly more likely therefore to perform better. But then I am still an amateur at this and decided not to break my head any further. Back to "What Works on Wall Street". There is a really exciting part (sad isn't it but seriously when you see how well this stuff works it is a lot of fun) when he explains how tweaking or combining the value strategies reduces volatility and improves overall return. When I read that I assumed he was going to expand further but the point sort of got lost and I'll have to do a re-read to find it again. As an amateur I am also stuck with internet stock screeners and not all of them give you the parameters or the level of detail you need to get the screener working exactly as you need. The best advice on that is given at the end of "Predicting the Markets of Tomorrow" fortunately for me I worked that out for myself years ago. If you are like me you will end up reading just the main text and skimming over the tables. Do I recommend this book? Well put it like this - I am pretty certain that I will be retiring rich thanks to Mr. O'Shaughnessy (Seriously Sir if you do ever read this, my sincere gratitude.) I am just surprised to discover that there seem to be so few of us out there able to pick up on this and follow through.
4 of 4 people found the following review helpful
HASH(0x9cef1420) out of 5 stars glad I read the first edition Jan. 18 2006
By russellmania - Published on
Format: Hardcover
I was "sold" on the analysis and bought the growth fund early on and have been quite pleased with the result. I agree that taxes have been a killer (the deck gets reshuffled annually), and the expense ratio could be friendlier, but I'm still way ahead of the other popular mechanical strategy--buying the S&P 500. What I found particularly interesting about the book was the exposition of research that suggests that we overrate our ability to intuitively analyze situations, noting that simple decision rules often work better than human judgment.

Another thing I like about the strategy is that it simply makes sense from a fundamental (and technical) standpoint, and even if it isn't a world beater (it has been so far), it generates a relatively decent, diversified portfolio of stocks....again, the hennessey fund could be cheaper...and those taxes...