After its huge run-up over the past 5 years, does the stock market still have good times ahead? Quantitative investing guru James O’Shaughnessy thinks so.
In an interview with Canada’s Globe and Mail, O’Shaughnessy says that back in 2009 his firm looked at how the market would have to do in the next decade just to match its worst 20-year return ever. “If memory serves me, it was 6% average annual gain after inflation,” he says. “If we look back in 2019, I’m not saying that stocks will be giving huge double-digit returns, but I do think they will end up being one of the best-performing asset classes.”
O’Shaughnessy says the big risk investors face right now is “extrapolating the bond market’s fantastic performance since 1981 into the future. We think long-term bonds will be going into a multidecade bear market, and we’re urging investors to invest only in short-term bonds.” He adds, “I’m not saying don’t buy bonds; I’m saying be careful which bonds you buy.”
O’Shaughnessy also talks about what valuation metric he prefers, and offers some general investment advice. “Establish an asset allocation and then rebalance it when it gets 15% out of whack,” he says. “Really, if investors could just do that, they could substantially improve their overall performance.”
Validea’s James O’Shaughnessy-inspired portfolio is up 9.8% annualized since its mid-2003 inception vs. less than 6% for the S&P 500. Check out its holdings here.