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What it argues
What Works on Wall Street is James O'Shaughnessy's systematic examination of stock market returns across multiple decades, analyzing which investment strategies actually produce superior long-term results and which are myths. Originally published in 1996, the book has been updated through four editions, most recently in 2011, each adding more years of data and refining the conclusions. It is one of the most data-intensive treatments of practical investing available to a general audience.
The methodology is empirical and Compustat-based: O'Shaughnessy took decades of stock market data and back-tested a large number of investment strategies — growth, value, momentum, income, combination approaches — to determine which produced risk-adjusted returns above the market average over time. The results are often counterintuitive. Many strategies that investors believe work — buying stocks with recent strong performance, chasing earnings momentum, buying growth at any price — underperform the market over full cycles. Others that are theoretically straightforward but behaviorally difficult — buying stocks with low price-to-sales ratios, combining value and momentum factors — produce consistent long-term outperformance.
What it gets right
- 1.
Back-testing reveals that most popular investment strategies — buying recent winners, chasing growth, trading frequently — underperform simple index investing over full market cycles.
- 2.
Price-to-sales ratio is one of the most consistently predictive valuation metrics in O'Shaughnessy's analysis, more reliably than price-to-earnings or price-to-book.
- 3.
Combining value and momentum factors produces better risk-adjusted returns than either alone. Cheap stocks that are also beginning to show positive price momentum outperform.
What it covers
Who wrote it
James O'Shaughnessy is an American quantitative investor and author. He founded O'Shaughnessy Asset Management in 1988, which implemented the factor-based strategies described in his books and was later acquired by Franklin Templeton. What Works on Wall Street, first published in 1996, has gone through four editions and is among the most cited books in quantitative investment circles. He has also written Predicting the Markets of Tomorrow. He writes and speaks regularly on long-term investment strategy and market behavior.
