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
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
I just did not believe that the market
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.