Summary
- O’Shaughnessy’s book “What Works on Wall Street” backtests single and multi-factor models.
- Rather than using a single factor (eg. P/E), you can improve performance by using O’Shaughnessy’s composite model. This is an efficient way for an investor to generate investment ideas.
- An investor can overlay an additional model as a further filter such as Piotroski’s F-Score to help in the selection process.
- The top 30 of stocks in the Russell 3000 is shown, ranked using the F-Score.
- From the list, I hold Valero Energy (VLO) and Trinity Industries (TRN).
One of the best ways an investor can beat the market is to use a backtested screen or model that is based on value investing. James O’Shaughnessy in his investment classic “What Works on Wall Street” presents a simple multi-factor model which can easy be used as a starting point. From there investors can do traditional bottoms-up analysis to pick the best opportunities. Personally I use such types of value models as a screen for the majority of the investments in my portfolio. This is a good starting point and I believe is a solid approach.
