Research
O'Shaughnessy Asset Management conducts ongoing research on the stock market, the concepts of long-term, disciplined investing and our investment strategies. We routinely look for ways to help communicate and improve existing approach. We are also seeking successful, empirically tested stock selection ideas for new strategies, and will publish these periodically.
Opportunities in Financials
Even though the financial sector is the current market pariah, history tells us that this is an excellent opportunity to buy into financial stocks. As radioactive as the sector may seem to most investors at the moment, this is not a unique market environment in the context of history—in the past, similar sell-offs of financial stocks have been followed by huge rebounds. When faced with fear, investors too often seek security when instead they should be searching for opportunity.
Investor Sentiment Analysis
"Be fearful when others are greedy and greedy when others are fearful."
— Warren Buffett
A study of the American Association of Individual Investors' (AAII) "Investor Sentiment" poll from 1987-2008,1 provides solid evidence for Buffett's principle, especially as it pertains to growth investing. The average rolling one- and three- year returns to indices or strategies bought during times of prevalent bearish sentiment were all superior to their long term one- and three- year averages. The outperformance was most significant for growth strategies. For example, if you bought the Russell 2000 Growth during these periods of investor malaise, the average one year return would have been 7.36% better than the overall average one-year return between 1987 and 2008. The opposite holds true during very optimistic times. All strategies (with the exception of Market Leaders Value) underperformed their long term average following periods when investors were the most hopeful. The data leads to a simple conclusion: when people are overly excited about the market, buy value. When they panic, buy growth. Market Leaders Value is a strong strategy regardless of investor sentiment—it is the one exception to the rule. Click here to download the rest of the study.
1 Survey is available to AAII members at their website.
Investors should keep in mind that there is no certainty that any investment or strategy will be profitable or successful in achieving investment objectives. Past performance is not an indication of future results.
