by Tim Price
In his book What works on Wall Street, James O’Shaughnessy analysed a variety of strategies that delivered market-beating returns in the US stock market.
Value investing proved to be one of the most outstanding.
O’Shaughnessy took a variety of metrics – the price/sales ratio (PSR), price/cashflow, price/book and price/earnings – and then collated the 50 stocks from the broad US market which displayed the highest, and lowest, for each metric. He then annually reweighted his two lists, and ran this portfolio of ‘growth’ and ‘value’ over a period of 52 years, ending in December 2003 (shortly before the third edition of his book was published in 2005).
The results of O’Shaughnessy’s experiment are shown below.