O’Shaughnessy is Chairman, Chief Investment Officer<\/strong> and Portfolio Manager at O’Shaughnessy Asset Management. O’Shaughnessy focuses onquantitative<\/a>equity analysis<\/a>,portfolio<\/a>management<\/a>, research decisions, and investment modeling. He is the author of several books, including the bestselling <\/strong>“The Best Investment Strategies of All Time” – What Works on Wall Street<\/strong>. In his investment style, O’Shaughnessy combines momentum<\/a> and value<\/a>investing<\/a> with fundamental criteria. He called the investment strategy the Trending Value<\/a>Strategy<\/a>. O’Shaughnessy has received several US patents for his investment strategy and has been recognized by Forbes.com as a legendary investor<\/strong>.<\/p>\n\n James P. O’Shaughnessy was born on May 24, 1969 in Saint Paul, Minnesota. He attended Saint Thomas Academy as a teenager. Even as a young person, he was interested in the <\/strong>stock market<\/a> and in analyzing stocks<\/a>, for example, he examined the companies in the Dow Jones Industrial Average stock index for common characteristics. O’Shaughnessy graduated from the University of Minnesota in 1986 with a Bachelor of Arts degree in economics<\/strong>. O’Shaughnessy initially worked for a family venture capital firm. A colleague drew O’Shaughnessy’s attention to the fact that the findings of O’Shaughnessy’s research<\/strong> could also be of interest for the management of pension funds<\/strong>. O’Shaughnessy therefore founded O’Shaughnessy Capital Management<\/strong> in 1988. The company advises large pension funds and foundations. <\/p>\n\n Due to his interest inquantitative<\/a>analysis<\/a>, O’Shaughnessy continued his research.<\/p>\n\n He wrote several books:<\/strong><\/p>\n\n Further key professional data:<\/strong><\/p>\n\n O’Shaughnessy is the inventor of the Trending Value<\/a>Strategy<\/a>. In the fourth edition of his bestseller “What Works on Wall Street”, James O’Shaughnessy has developed a new idea that he describes as “the best <\/strong>stock market strategy of the last 50 years<\/strong>“. Instead of focusing on one specific key figure, he ranks companies according to 5-6 key figures<\/strong> and combines <\/strong>this with a momentum factor<\/a>.<\/strong> <\/p>\n\n First, the companies are analyzed using the following key figures and divided into 100 groups (percentiles). The six key figures are briefly explained below before the trending<\/a>value<\/a>strategy<\/a> is discussed further. <\/p>\n\n The price-to-book ratio<\/a> is used to compare the market capitalization of a company with its book value. It is calculated by dividing the company’s share price by its book value. Price-to-book ratios below 1 are generally considered sound and favorable investments. However, there can be differences depending on the sector. <\/p>\n\n The price\/sales ratio<\/a> is a valuation ratio that compares a company’s share price with its revenue. It is an indicator of the value that the financial markets attach to each franc of a company’s revenue<\/a>. <\/p>\n\n TheEBITDA\/EV<\/a> multiple is a financial valuation metric that measures a company’s return on investment (ROI)<\/a>. The EBITDA\/EV ratio may be preferred over other measures of return<\/a>because it adjusts for differences between companies. Using EBITDA adjusts for differences in capital structure, taxation andaccounting for<\/a>fixed assets. Enterprise value also adjusts for differences in a company’s capital structure. <\/p>\n\n The price\/cash flow ratio is a stock valuation indicator or multiple that measures the value of the share price in relation to its operating cash flow per share. The ratio uses operating cash flow (OCF), which includes non-cash expenses such as depreciation and amortization to net<\/a> income<\/a>. The price\/cash flow ratio is particularly useful for valuing stocks that have a positive cash flow but are unprofitable due to high non-cash expenses. This is in contrast to thediscounted<\/a>cash flow<\/a> method where free cash flow is used – also known as free cash flow (FCF). <\/p>\n\n The price\/earnings ratio<\/a> is the ratio of a company’s valuation that measures the current share price in relation to earnings per share (EPS).<\/p>\n\n Shareholder return<\/a>is a measure of financial performance that indicates the total amount an investor earns from an investment, particularly from shares<\/a> or units: Either through share buybacks, dividends<\/a> or the repayment of debt.<\/p>\n\n The calculation and classification of the Trending Value strategy<\/a> works as follows: Each company is classified according to the above valuation ratios and then a combined ranking is calculated for the company.<\/p>\n\n For example:<\/strong> If the price\/sales ratio<\/a> of a company is among the lowest 1 % of the data set, it is given a price\/sales rank of 1. A low value means that an investor can expect a comparatively high turnover<\/a> for an investment of one franc. However, if the company has a price\/sales ratio that is among the highest percentage of all companies in the data set, the company is given a price\/sales rank of 100. The same calculation is repeated for each of the key figures. <\/p>\n\n The reverse is true for some key figures, for example EBITDA\/EV: if a company is in the top 1%, it is also ranked first for this key figure.<\/p>\n\n Each company<\/strong> therefore receives a percentile rankingfrom 1 to 100<\/strong> for each KPI<\/strong>. If a value is missing, it receives a score of 50, which represents the middle of the ranking and is therefore neutral. Once all companies have been ranked in terms of all evaluation indicators, all values of the evaluation indicators are added up for each company. All companies<\/strong> are then<\/strong> ranked<\/strong> in percentiles from 1 to 100 in this combined ranking. This final result is called the <\/strong>Value<\/a>Composite<\/a>.<\/strong> A Value Composite of 1 means<\/strong> that the company is among the 1% most favorable companies<\/strong> according to these factors. <\/p>\n\n In a second step<\/strong>, the top 10 %<\/strong> of companies are selected<\/strong>, which are classified according to this value composite score. The shares are then sorted<\/strong> according to a <\/strong>momentum<\/a>factor<\/a>, in this case the 6-month price index<\/strong>. This indicates how the share price has performed over the last 6 months. <\/p>\n\n The result is an extremely favorable group of companies that have risen in the last 6 months.<\/strong><\/p>\n\n O’Shaughnessy tested 3 different value composite scores (VC<\/a>), each based on different criteria:<\/p>\n\nBiography<\/h2>\n\n
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How does the Trending Value strategy work?<\/h2>\n\n
Price-to-book ratio<\/h3>\n\n
Price\/sales ratio<\/h3>\n\n
EBITDA\/enterprise value (EV)<\/h3>\n\n
Price\/cash flow ratio<\/h3>\n\n
Price-earnings ratio<\/h3>\n\n
Shareholder return<\/h3>\n\n
Calculation Trending Value Strategy<\/h3>\n\n
Does the Trending Value Strategy really work?<\/h2>\n\n
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