James O’Shaughnessy is a well known “value quant” for his book What Works on Wall Street (4th Ed). He has a new column in Marketwatch discussing what he calls “the top stock-market strategy of the past 50 years.”
According to Jim, using a combination of value and momentum strategies — “Trending Value” — is the best performing strategy since 1963. To capture this, he ranks stocks based on:
• Price-to-Cash Flow
• EBITDA/Enterprise Value
• Shareholder yield (dividend yield + rate of share repurchases)
O’Shaughnessy ranks all of these on a 1-100 basis for his Trending Value portfolio. He works with the top 10% of those ranked stocks with the best composite score. He selects a concentrated portfolio of 25 stocks based on trailing six-month momentum, creating an extremely cheap group of stocks that are on the mend.
Its an interesting ideas, one worth exploring . . .
The top stock-market strategy of the past 50 years
James O’Shaughnessy and Patrick O’Shaughnessy
Market Watch, December 16, 2011