While the financial headlines have been dominated by day-to-day fears recently, James O’Shaughnessy says that making investment decisions based on short-term factors is a very dangerous game.

“All of the available research demonstrates that reacting to short-term conditions is the worst way for a long-term investor to act,” O’Shaughnessy writes in commentary on his firm’s website. He notes that, according to one survey, almost double the percentage of investors feared a stock market crash in February 2009 — just before the market bottomed — as did in 2007, when the market was near its peak. “The point is simple but deadly — we are our own worst enemies when it comes to decision-making,” he says. “Whether it is bad news or good, we tend to extrapolate what has happened recently far into the future. This common human tendency prevents investors from taking advantage of what can often be great buying opportunities.”

O’Shaughnessy says the media falls prey to recency bias, too, which lately has led to fear-filled headlines that lack long-term perspective. “Reporters are no different,” he says. “The market decline leads them to highlight all of the negative fore-casts and stories without giving a clear or balanced reporting of how all of the prognosticators have done with all of their forecasts. For the press, if it bleeds, it leads.”

O’Shaughnessy says that the way to deal with all of this is to develop a good investment plan and stick with it. He notes that his Enhanced Dividend strategy has returned about 20% since the beginning of September 2008 — a period that has been one of the most tumultuous in memory. “But,” he says, “investors can only enjoy those gains if they have a plan and stick with it.” The plan doesn’t have to be complex, he says, but investors have to have the discipline to stick with it when times get tough in order to reap the benefits.

As for Europe, O’Shaughnessy says the continent’s financial crisis has made European stocks “dirt cheap” compared to U.S. stocks. He says that many of his European holdings get a large portion of their revenues outside of Europe, and that most are non-financials.