Jim O’Shaughnessy, Chairman and CEO of O’Shaughnessy Asset Management, believes that equity valuations “present buying opportunities akin to 1974 and 1982.” He writes that investors need to ignore short-term volatility and market-bottom calling, and instead focus on where stocks will be three to five years from now.

O’Shaughnessy offers a number of historical stats that put the recent decline, volatility and opportunity in context. One is that “there have only been 66 days that the Dow closed +/- 6% (total return) from the previous close. Eight of those days (12%) have come since September 29th of this year.” Second, according to “JP Morgan, the value of short-term cash holdings in the U.S. now exceeds the market cap of the S&P 500”. Third, the yield on short-term Treasuries recently went negative as investors flocked to less-risky assets.

But the “the pervasive fear and uncertainty have left stocks extremely cheap for the long-term investor” says O’Shaughnessy. He says that 153 stocks in the S&P 500 are now trading below book value, that the normalized P/E ratio for the S&P hit 10.4 on Nov. 20th (this level was among the 10% of the lowest observations in 52 years), and that long-term mean reversion would indicate that now is an excellent time to be a long-term equity investor.

Leveraging his knowledge on systematic long-term investing and stock market history, O’Shaughnessy shows that by selecting stocks using specific fundamental variables (low P/S, high buyback yield, and strong momentum), specific investment strategies can outperform the overall market coming off bear market and recessionary environments. He writes, “in the five-year period following recessions, the cheapest decile of stocks in our All Stocks universe outperforms the most expensive decile by an average of 13.96% annually!”