Style Diversification Using the James O'Shaughnessy Approach

by Wayne A. Thorp

For decades, stock investors have been debating the merits of growth versus value investing. While growth investors risk being burned by the latest hot stock, value investors may end up buying undervalued stocks that only get cheaper.

James O’Shaughnessy set out to answer this argument “once and for all” by testing a series of growth and value screens on a sufficiently large stock database that covered a meaningful period of time. His goal was to determine which screens within each style group produced the best returns.

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The results of O’Shaughnessy’s analysis were first published in the 1996 book “What Works on Wall Street: A Guide to the Best-Performing Investment Strategies of All Time” (McGraw-Hill).

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