Lack of discipline devastates long-term performance

in Business/Raymond James by

The book, “What Works on Wall Street: The Classic Guide to the Best-Performing Investment Strategies of All Time,” by James O’Shaugnessy, is an excellent resource for investors.

It was originally published in 1997 and the fourth edition is now in print.

The book was written, and has since been updated, to illustrate which return factors are robust when tested over a long period of time, and, in the alternative, which fail too frequently to be used with confidence by investors.

Many growth and value factors were tested, along with others including relative strength. The summary of findings establish a useful foundation for how you might construct equity portfolios.

The book highlights several time-tested investment themes, and we’d like to cover three of our favorites over the next couple of months.

Theme one is “The only way to beat the market over the long term is to use sensible investment strategies consistently. … The lack of discipline devastates long-term performance.”

We focus upon the use of relative strength, because we are comfortable with the many ways in which it has been tested and applied as a successful return factor for portfolio managers.

Using research conducted by the likes of O’Shaughnessy and others is always helpful in establishing credibility for the process.

O’Shaughnessy gained access to the Compustat database and tested everything that had been purported to work (market capitalization, P/E ratios, price-to-book ratios, price-to-cash flow ratios, price-to-sales ratios, dividend yields, earnings per share, profit margins, return on equity and relative strength) from 1951 to 1996. He tested them independently and in conjunction with other variables.

In summary, he found that there was only one factor included in all of the top 10 performing strategies over time, and that factor was relative strength. In addition, he pointed out that the worst strategy he tested was the anti-relative strength strategy of bottom fishing (or buying the stocks with the worst trailing performance).

This article was written by Dorsey Wright and Associate, Inc., and provided to by Arthur Levin, managing director, TLS Wealth Management of Raymond James.

Levin is a financial advisor with Raymond James & Associates, Inc., a member New York Stock Exchange/SIPC located at 2015 Boundary St., Suite 220, Beaufort. 

He can be contacted at 843-379-6100 or Visit

Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. Raymond James is not affiliated with nor endorses the author or his firm. All opinions are as of this date and are subject to change without notice.