Rating: 
Summary: I enjoyed reading this book, but am not sure it is practical
Review: "What Works On Wall Street" is one of my favorite investment books. Previously, I had read "Invest Like The Best," also by James P. O'Shaughnessy, and I wasn't overly impressed. "Invest Like The Best" made it sound as if all you needed was Value Screen, or some other online stock-screening software, and you would easily match and equal the best money managers, regardless of their investment strategy. This could be done because their portfolios always held certain types of stocks, such as high 5-year's earning growth rate stocks. Now obviously, great investors, like Peter Lynch, have portfolios that consist of different types of stocks, such as growth stocks and some value plays. So, such a strategy seemed at best naive. Worse, O'Shaughnessy made it sound like achieving 20% or great returns was child's play. My only conclusion was that O'Shaughnessy was a child of the great bull market of the later 1980's and 1990's and that he had little real knowledge to offer investors. "Invest Like The Best" seemed like a book that would mislead the new investor. So, I wasn't too impressed when I heard O'Shaughnessy had a new investing book out," What Works On Wall Street." I almost didn't read it, but heard good mentions of it from people whose investment experience I respected, so I decided to give the book a look. I'm glad I did! Using Standard & Poor's Compustat database, O'Shaughessy put together 50-stock portfolios of certain kinds of stocks (for example, the 50 lowest Price-to-sales ratio stocks, the highest Price-to-sales ratio stocks, etc.). He examined all the measures that most investors rely upon, including PSR's, P/E's, Price-to-cash-flow, Price-to-Book, etc. The results showed that "value does will out." The strongest and best indicator of solid appreciation stocks were low PSR's (Price-to-Sales Ratios) which were pioneered by Ken Fisher in Super Stocks. Low PSR stocks sell for low multiples of their sales revenue. Next up in usefulness were the more complicated Price-to-cash-flow and price-to-book ratios. Again buying value based upon those criteria proved a winning strategy. Further, buying the high-priced stocks under any of these criteria lead to below average market returns. In other words, don't pay too much for your investments. The portfolios were rebalanced annually. It was not surprising that overvalued stocks were punished in the long-run, or that stocks bought at value appreciated well, but what was shocking was the extent to which low PSR stocks blew away low P/E stocks. In other words, seeking value based upon low PSR was far more productive. Exactly why this is still needs to be determined. Low PSR stocks should not only point to unpopular stocks, but also have a bias toward low-profit margin businesses, which is a stunning result. No compensation was made for the difference in average profit margins for different industries. So it is possible that low PSR served as a surrogate for some other factor, maybe turnaround companies, or stocks in trouble. O'Shaughnessy then goes on to discuss relative strength stocks and growth-momentum measures. He shows how portfolios selected on multiple criteria can outperform portfolios selected on only a single criteria (such as low PSR). Given the annual rebalancing of the test portfolios, maybe having a strong relative strength stock makes sense and it certainly improved the results. But, one question remains: How do individual investors benefit from this knowledge? One possibility would be to hold 50-stock portfolios and do as O'Shaughnessy recommends. However, many investors will not want to hold 50 stocks, nor rebalance their portfolios annually. For investors who buy-and-hold only a few select stocks, adopting O'Shaughessy's methods would demand a major change in thinking. "What Works On Wall Street" also makes clear that criteria have different significance for different market capitalization stocks. In particular, small stocks and big stocks are not the same. Or, as many value investors already know, value is best applied to larger more established companies. I have only touched upon a few of the findings of "What Works On Wall Street." While, I enjoyed this book (and even though I have a degree in math), I haven't evaluate the quality of the statistical studies (as mentioned by other reviewers as a concern). And, as pointed out, few long-term investors will want to turn over their portfolios as aggressively as such a strategy demands. Further, the results of these studies support my own views about the superiority of low PSR stocks and value stocks and avoiding high p/e stocks. So, I'm probably predisposed to like the book for that reason. This book certainly shouldn't be the only investment book you read, but it might give investors some insight. For example, there is a discussion of the small firm effect and how very small companies benefit the most from such an effect. In particular, many mutual funds only purchase stock in companies with a certain total market capitalization and small companies that cross this threshold often show expectional returns. Again, I'm not exactly sure how you'd benefit from this (or if you'd want to try!), but it's one more thing to think about. Peter Hupalo, Author of "Becoming An Investor"
Rating: 
Summary: Some Good Stock Picking
Review: I must recant my earlier 1-star review. While Mr. O's career switches - fund manager to Netfolio back to fund manger -- are still anything but encouraging, one of his stock picking methods is currently working. I discovered this by looking at the portfolio of one of the funds he started. Basically, it's the stuff I own and it's doing better than the averages. (In fact, it's doing better than any fund group except gold and bear market funds.) O'Shaughnessy offers several methods for stock selection based on his analysis of several decades of data.
The statistical work may be flawed as others have said but his methods are making money! (In this bear market, that is quite a boast.) His challenges of well-known methods that don't work may be even more relevant. (First rule of investing -- don't lose money.)
Rating:
Summary: Common Sense Leads To Un-Common Performance !!
Review: James O'Shaughnnessy's book is the latest to engage the Age Old Question: growth stocks or value stocks? Instead of focusing on those 2 sectors specifically, he meticulously looks at the multi-decade history of various metrics -- price-sales, price-book, price-earnings, etc -- in making sound investment decisions. The books major highlights are as follows: (1) A bent towards small and microcap stocks, particularly value-oriented stocks, works very well. Buying microcaps is difficult for institutions but NOT for most individual investors. (2) Price-sales is underused as a method for finding good (value) stocks and market-beating performance. (3) Price-earnings and dividend yield are also good indicators, especially in the context of larger cap stocks. (4) Value edges out growth. (NOTE: The starting and ending points for measuring long-term cycles are so important that changing the dates by a few years can often reverse the results. While value stock investing might have a slight edge in the time frames studied in "What Works On Wall Street", keep in mind that depending on where growth and value stocks are in their respective cycles when you decide to invest is very important to your portfolio choices. For instance, after a big value runup, growth stocks often outperform for a decade or so.) (5) Using more than 1 metric is important in helping outperformance while reducing risk/volatility. The book has tons of data and backs up its claims well. Keep in mind, this book was published in 1998 with the data going through 1996. Had the data stopped at 1999, the results would have looked VERY DIFFERENT! And, of course, had it been updated through recent years, different again. All in all, a very worthwhile book, though you can get lost and immersed in so many numbers at various times that you forget "the big picture" which thankfully O'Shaugnnessey repeats often enough to make sure the reader comes away with the basics.
Rating:
Summary: Common Sense Leads To Un-Common Performance !!
Review: James O'Shaughnnessy's book is the latest to engage the Age Old Question: growth stocks or value stocks? Instead of focusing on those 2 sectors specifically, he meticulously looks at the multi-decade history of various metrics -- price-sales, price-book, price-earnings, etc -- in making sound investment decisions. The books major highlights are as follows: (1) A bent towards small and microcap stocks, particularly value-oriented stocks, works very well. Buying microcaps is difficult for institutions but NOT for most individual investors. (2) Price-sales is underused as a method for finding good (value) stocks and market-beating performance. (3) Price-earnings and dividend yield are also good indicators, especially in the context of larger cap stocks. (4) Value edges out growth. (NOTE: The starting and ending points for measuring long-term cycles are so important that changing the dates by a few years can often reverse the results. While value stock investing might have a slight edge in the time frames studied in "What Works On Wall Street", keep in mind that depending on where growth and value stocks are in their respective cycles when you decide to invest is very important to your portfolio choices. For instance, after a big value runup, growth stocks often outperform for a decade or so.) (5) Using more than 1 metric is important in helping outperformance while reducing risk/volatility. The book has tons of data and backs up its claims well. Keep in mind, this book was published in 1998 with the data going through 1996. Had the data stopped at 1999, the results would have looked VERY DIFFERENT! And, of course, had it been updated through recent years, different again. All in all, a very worthwhile book, though you can get lost and immersed in so many numbers at various times that you forget "the big picture" which thankfully O'Shaugnnessey repeats often enough to make sure the reader comes away with the basics.
Rating: 
Summary: Too Complicated for Average Investor
Review: O'Shaughnessy's intentions were honorable BUT this book is too complicated for investors to use in the real world. I am a professional investment manager and loved the book but I worry about the people that "think" they understand how to put together the "strategies". Fire your broker and find a reputable Registered Investment Advisor instead.
Rating:
Summary: What works in Canada
Review: Some of the reviews comment on the difficulty in using O'Shaughnessy's approach to pick individual stocks. In Canada, this problem is solved by the availability of three mutual funds using O'Shaughnessy's method. These funds are managed by James O'Shaughnessy/Bear Stearns and sold in Canada by RBC (Royal Bank of Canada). Each of the three funds have far exceeded the underlying index on which they are based (S&P 500 and S&P/TSX Composite Index). For example, the O'Shaughnessy US Value Fund had a compound annual growth rate of 5.5% for the five year period ending May 31, 2004. The O'Shaughnessy US Growth Fund return for the same period was 11.6%. Lastly, the O'Shaughnessy Canadian Equity Fund return was 13.6%. These returns are hard to argue with. Set your search engine to look for "rbc o'shaughnessy" if you are interested in the details.
Rating:
Summary: Statistics you can't afford to ignore
Review: The author went through the Compustat database to study the effects of eleven financial ratios on a hypothetical portfolio that was rebalanced once a year. The financial ratios or parameters are: market cap, price to earning, price to book, price to cash flow, price to sales, dividend yield, 1 year earning's growth, 5 year earning's growth, profit margin, return on equity, and price momentum. The study spans over 45 years. For each parameter he reports the portfolio return by year, and the return's arithmatic mean, standard deviation, geometric mean, Sharpe ratio, and how often it beats (or conversely underperforms) the broad market. He then studies performance of portfolios that combine high or low values of several of the above financial parameters. And he does present some very interesting and useful results here. Arguably one must already have some familiarity with various stock picking strategies, and some comfort with statistical analysis, to profit from this book. The book has two main weaknesses: (1) The author gives no reason to believe that the past performance will indeed guide future performance, and (2) The author gives no information on the turnover encountered by each portfolio strategy. Hence unless your investment portfolio is limited to your retirement account, you don't know whether following the conclusions from this study will really make you additional AFTER TAX money, compared to a low turnover S&P500 indexing strategy. Nevertheless the book presents ORIGINAL reliable and FACTUAL informaion regarding how the US market behaved between 1951 and 1996. That in itself makes it more useful than most investment books. If you happen to be serious about investing in stocks, you simply can't afford to ignore these results.
Rating:
Summary: Enlightening
Review: The book WHAT WORKS ON WALL STREET provides powerful information for the long term investor. Not only does it set in stone the necessary disciplines for successful investing, it does so in a commonsense, low cost method(rebalance annually), dismissing active portfolio management as a viable option for a personal investor while maintaining proven investment strategies tested through market cycles. This strategy will continue to work over time(even as more and more people read this book)because, quite honestly, it is boring and over the long run, most will fail to maintain the strategies outlined in this book. Caveat: The author uses the top 50 stocks to create a portfolio of stocks within a strategy. This is most likely too many stocks for the average investor(too much money). You may be forced to select stocks from within the 50 stock portfolio with the understanding that the top stocks are not always the best performing. Therefore, further research may be required in order to select stocks within the 50 stock portfolio that match your available funds. For example, If you have a $100,000 portfolio, you will not cost effectively be able to purchase the top 50 stocks, you will be forced to select 5 to 15 companies from within the 50 stock portfolio...Question: Which stocks?
Rating:
Summary: Don't belive the hype
Review: The idea behind this book seems appealing: Statistical examination of stock market data over a long (>40yr) period, to determine what strategies work.
What you get, is someone tinkering with a spreadsheet and database to retrospectively determine what WOULD HAVE worked on Wall Street. Just like those guys selling sure-fire horse racing systems.
LAYOUT
Pick up this book and flip through it and you'll be surprised to notice that it's 330 or so pages are over 75% charts and tables. There are literally dozens of pages of charts of the year on year statistics the author tells us up front are useless. But the ones I found most irritating were the GIANT size bar charts spreeeeead over 3-4 pages with maybe 4 bars to a page showing what $10,000 dollars would have grown to over 40 years. Gimme a break!
STATISTICS
Good news is that you'll have no trouble understanding them. This material never gets beyond averages, and standard deviation. Oh, and someone showed him how to calculate the Sharpe ratio. Bad news is he doesn't seem to know enough stats to interpret the data.
BIBLIOGRAPHY
Rather suprising given that the book is almost all tables and charts by the author, is that he quotes 6 pages (hundreds), of sources. Who's he trying to kid? Virtually none of these are referenced in the text.
FINALLY
What finally conviced me that this is nonsense was this: The author makes much of the different performance between major stocks and the market as a whole over his 40 year analysis period. In every chapter separate results are given for major stocks vs the market. BUT right there on page 38 in table 4-4 we clearly see the results for majors vs the market steadily decreasing from +3.89% in the 50s to -0.96% in the 80s. This seems to be entirely unnoticed by the author!
CONCLUSION
Some of his comments on the psychology of Wall Street are interesting. His trading recommendations are a mixture of arbitrary decisions and standard ideas you'll get in other books (eg Ben Graham) such as:
High PERs are dangerous.
Consistent earnings growth is good.
High Sales to mkt cap is good.
Rating: 
Summary: Take with a grain of salt...
Review: The key findings of O'Shaughnessy are the slight superiority of returns for small cap stocks and larger excess returns for value stocks, and therefore the combination of both is ideal. Of course, Ben Graham said this 70 years ago but approached the topic from the bottom up, while this book analyzes top-down. I would however steer cleer of his idea about relative price momentum that he claims does 18.11% a year. Note that O'Shaughnessy started several funds, which did absolutely miserably and then he jumped ship having made a small fortune in book sales. Read this book, but read Graham&Dodd as well.
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