O'Shaughnessy On How To Deal With The "Cruel Beast"

The emotional ups and downs of the past few years have had many investors jumping in and out of the stock market in alternating bouts of fear and relief. Quantitative investment strategy guru James O’Shaughnessy has some advice for them: Stop it.

In a column for MarketWatch, O’Shaughnessy and son Patrick O’Shaughnessy write that “volatility is a cruel beast, because it leads investors to make emotionally based decisions that center on the near term future and ignore longer-term opportunities. Moreover, many investors are staying out of the stock market entirely or selling their equity stakes.” But, they say, history shows that most investors have horrible timing, and tend to move in and out of stocks at very inopportune times.

“We believe the answer to this problem is re-framing each individual’s investing goals, time horizons, and strategies. Find the best, time-tested investment strategies and stick to them for long periods and through inevitable stretches of underperformance,” the O’Shaughnessys write. “With discipline, beating the market and earning strong returns over time is achievable.” They discuss one way they recommend doing so, their “Trending Value” strategy, which they detail in the latest edition of What Works on Wall Street.

But, the O’Shaughnessys stress, you have to stick to a strategy for it to work. “By focusing on the long term, and taking advantage of market volatility rather than being scared off by it, investors can beat the market in the long term and achieve their investing goals,” they say.