Patrick O’Shaughnessy

Patrick O’Shaughnessy

Patrick O’Shaughnessy holds a BA in philosophy from the University of Notre Dame, Indiana, and is a Chartered Financial Analyst. He is a portfolio manager and principal at O'Shaughnessy Asset Management. He is an expert in investment strategy and investor behaviour, and the author of Millennial Money: How Young Investors Can Build a Fortune. He is also a contributing author to the national best-selling fourth edition of What Works on Wall Street: The Classic Guide to the Best-Performing Investment Strategies of All Time, published by his father James O'Shaughnessy, who is also featured on the meetinvest platform.

Summary

O'Shaughnessy’s research is based on 90 years of market performance patterns and takes a hybrid investment approach, combining value with Momentum strategies. When building a share portfolio, he suggests buying stocks that:

 

  • Have shareholder-friendly practices (i.e. pay Dividends, buy back shares, pay down debt, etc.)
  • Earn strong returns on their investments
  • Have high-quality earnings
  • Are attractively priced
  • Have “improving market expectations” (i.e. stock is in an uptrend or showing momentum)

 

The Millennials are a generation that witnessed one of the biggest bubbles and busts in market history – the 1990s tech bubble. This devastating moment, and the cause of subsequent risk aversion, was compounded by the 2008 meltdown. Because they have witnessed so much trouble in the financial markets, Millennials are more reluctant than past generations to invest in stocks. O’Shaughnessy’s goal in Millennial Money is to break down this risk aversion with solid facts written in language that the average Millennial reader can understand. Many Millennials will find a value strategy difficult to follow psychologically because, as O’Shaughnessy writes: “Value investing is all about buying in the face of fear, pessimism and negativity…[and] the reason it’s so difficult to be a contrarian value investor is that cheap prices result from trouble.”

 

O’Shaughnessy believes: “Investing success is incredibly simple: spend less than you earn, make consistent investments in the global market and wait. If you do these three things, you cannot help but get rich as compounding works for you over time. But simple doesn’t mean easy. That last step (wait) is incredibly hard to do in practice. We always want to do something with our portfolios and usually at exactly the wrong time. As Nick Murray says: ‘You can’t, as we’ve seen, build and hold wealth without equities. But the converse is even more importantly true: equities can’t do it without you.’ Controlling your behaviour matters more than anything.”

Success Formula Millennial

  1. MktCapM is >= US$ 300 million (basis year 2000) adjusted yearly
  2. Rank all stocks according to Price 1-Day ago / TTM Free Cash Flow Per Share (lower is better)
  3. Rank all stocks according to ( TTM Cash from Operations – TTM Net Income) / latest Filing Market Cap (higher is better)
  4. Rank all stocks according to TTM Cash from Financing Activities / latest Filing Market Cap (lower is better)
  5. Rank all stocks according to Latest FY Return on Invested Capital (higher is better)
  6. Rank all stocks according to 26 week Excess Total return (higher is better)
  7. Take the 200 stocks with the smallest sum of these ranks added up.

Hypothetical performance back-tested

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical monthly relative performance

How to read this graph:
A green bar shows how much the guru strategy outperformed the benchmark index in a particular month. A red bar shows how much the guru strategy underperformed the benchmark index in a particular month.

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical portfolio turnover

Data source: Bloomberg, Calculations: meetinvest

Books

Free Stock Screening Tool