Money manager and author James O'Shaughnessy is best known for the astute research presented in his books. We spoke to him about what the individual investor should focus on. So how did you start out, anyway? I started out like everyone else, wanting to know why a stock went up or down. I would watch with surprise when the price of story stocks, where the prospects for the company was the best thing since sliced bread, would tumble, despite the glowing recommendations for it. At the same time, I would see stodgy, old-line industrial companies such as Goodyear Tire rallying several hundred percent-age points. What did that indicate to you? I figured that it wasn’t the underlying story of the company that was important. Early on, I believed that the way the stocks moved had to have some sort of underlying symmetry. So you believe that it wasn’t a random walk? I just did not believe that the market was efficient. How so? If you agree that trading is frictionless and investors are rational, and if you agree that everyone has a homogeneous interpretation of the information, then stock markets are efficient. |
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