Leveraging O’Shaughnessy’s Investing Strategy
O’Shaughnessy’s investing strategy, from James O’Shaughnessy’s book What Works on Wall Street, is a rules-based stock screen that combines value, growth, and momentum: it looks for companies with a low price-to-sales ratio, a record of consistently rising earnings, and strong recent price performance, then buys the top-ranked names and rebalances on a schedule. The O’Shaughnessy growth screen applies the growth and momentum rules to find stocks with strong growth potential. You can run a version of the screen in Excel by pulling each metric for a list of stocks with MarketXLS formulas and ranking the results. Past screen performance does not guarantee future results; this is educational, not investment advice.
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What is O’Shaughnessy Investing?
O’Shaughnessy investing combines elements of growth investing and value investing in a quantitative, rules-based strategy. This style of investing takes the historical track record, quantitative methods, and asset allocation models developed by O’Shaughnessy and applies them to current markets.
The Five Pillars of O’Shaughnessy Investing
O’Shaughnessy investing is based on five pillars of analysis, which include:
- **Equity Markets:**analyzing the equity markets and assessing future growth prospects.
- Asset Allocation: determining the appropriate levels of risk and return for each asset class.
- Quantitative Investing: using quantitative methods to generate returns from the stock market.
- Risk Adjustment Models: creating tailored risk reduction strategies to reduce volatility.
- Momentum Investing: taking advantage of market trends and timing purchases and sales accordingly.
Implementing O’Shaughnessy Growth Screen
Investors can implement O’Shaughnessy’s investing strategy through a portfolio selection process, which involves identifying target stocks, intensive research, and portfolio optimization. Some of the key steps in portfolio selection include a growth screening process to identify potential investing opportunities, a quantitative score system to determine the relative worth of potential investments, and a process to evaluate the overall portfolio risk level.
MarketXLS and O’Shaughnessy Growth Screen
MarketXLS is a Microsoft Excel add-in that pulls the screen's inputs into cells, such as =PricePerSales("AAPL") for the price-to-sales ratio and historical earnings with hf_ functions, so you can build and rank an O’Shaughnessy-style screen for any list of tickers. MarketXLS also includes guru screen functions (see the related article below). Stock quotes are 15-minute delayed on the Standard plan and real-time on the Advanced and Business plans.
Ready-made screening workbooks are in MarketXLS templates.
Relevant blogs that you can read to learn more about the topic
