Jim OShaughnessy's teachings on investing

"An investment in knowledge pays the best interest." - Benjamin Franklin

Jim OShaughnessy, Chairman & Chief Investment Officer, OSAM LLC, Author of  What Works on Wall Street and 3 other books on investing.

Recently Jim twitted a wealth of knowledge on his twitter account. This post is the replica of the twits.

1. I have been a professional investor for over 30 years. What follows is some things I think I know and some things I know I don’t know. Let’s start with some things I know I don’t know.

Once you know that you know nothing, then only your journey of knowing will start and the wisdom and knowledge will expand.

2. I don’t know how the market will perform this year. I don’t know how the market will perform next year. I don’t know if stocks will be higher or lower in five years. Indeed, even though the probabilities favor a positive outcome, I don’t know if stocks will be higher in 10 yrs.

You can not predict the future and you can not time the market. The market will go up or down, no one knows. and who says that they know the direction of the market, they are just making you fool and themselves too. just focus on fundamental of the market and stocks.

3. I DO know that, according to Forbes, “since 1945…there have been 77 market drops between 5% and 10%...and 27 corrections between 10% and 20%” I know that market corrections are a feature, not a bug, required to get good long-term performance.

Market correction is a good opportunity for a value investor. So instead of fearing from the market correction, take the advantage of it and add more good stocks to your portfolio for a long term wealth creation goal.

4. I do know that during these corrections, there will be a host of “experts” on business TV, blogs, magazines, podcasts and radio warning investors that THIS is the big one. That stocks are heading dramatically lower, and that they should get out now, while they still can.

First rule of hare market investing, Don't believe on anyone. Just listen whatever they say if you want and take the important things out of it. Then do your own homework.

Even stop watching this business news channel and stock recommendation sites, this all will not help you in long term.

Do your own analysis, read good books and read company annual reports and then decide whether to buy or not and when to buy.

TV, news, Blogs(on investment tips), market news sites, investment tips are just noise, stay away from this.

In short term, most of the things are just noise, so invest for long term only.

5. I know that given the way we are constructed, many investors will react emotionally and heed these warnings and sell their holdings, saying they will “wait until the smoke clears” before they return to the market.

On noise, don't sell your positions. First understand the situation clearly, then how it may impact the company that you are holding. if the noise or situation affect your holding company in short as well as in long term and with this if the fundamental of the company also impacted, then only take the decision else just pass this noise.

for just a thought:

6. I know that over time, most of these investors will not return to the market until well after the bottom, usually when stocks have already dramatically increased in value.

In expectation of the right price, people don't invest whenever they get the opportunity. Identify the right opportunity on the right time is the investing skill. Whenever you get the opportunity, just buy it and hold it and with time when you got more opportunity just add more.

7. I think I know that, at least for U.S. investors, no matter how much stocks drop, they will always come back and make new highs. That’s been the story in America since the late 1700s.

I feel, the same is true in Indian Stock market context as well. Check the Sensex history, you come to know that after so may crashes and so many up and down still the sensex had returned a very good interest rate compared to FD and Bonds.

8. I think I know that this cycle will repeat itself, with variations, for the rest of my life, and probably for my children’s and grandchildren’s lives as well.

The up and downs are the nature of the market, so you have to understand it and take the advantage of this up and downs. Don't fer from it.

9. Massive amounts of data have documented that while the world is very chaotic, the way humans respond to things is fairly predictable.

10. I don’t know if some incredible jump in evolution or intervention based upon new discoveries will change human nature but would gladly make a long-term bet that such a thing will not happen.

11. I don’t know what exciting new industries and companies will capture investor’s attention over the next 20 years, but I think I know that investors will get very excited by them and price them to perfection.

Change is the only permanent thing that is sure to happen. See the history, and see the change. With the change we need to adapt and change ourselves. When fact change, change your mind.

Identify the MOAT  in the opportunities and invest in the stocks which have a competitive advantage.

What John Maynard Keynes say on this:

"When events change, I change my mind. What do you do?
When the facts change, I change my mind. What do you do, sir?
When my information changes, I alter my conclusions. What do you do, sir?
When someone persuades me that I am wrong, I change my mind. What do you do?"

12. I do know that perfection is a very high hurdle that most of these innovative companies will be unable to achieve.

100% perfect investment is a dream, so if you find 80-95% perfection, just start adding it.( This  is my personal opinion)

13. I know that, as a professional investor, if my goal is to do better than the market, my investment portfolio must look very different than the market. I know that, in the short-term, the odds are against me but I think I know that in the long-term, they are in my favor.

First thing, don't copy and if still you want to copy then first do your homework. Don't compare with anyone else's portfolio or return. Everyone have their own strategy, just learn from their strategy and improve yours. Always invest for long term with a predefined goal in mind. Remember what Benjamin Graham said :

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

14. I know that I can not tell you which individual stocks I’m buying today will be responsible for my portfolio’s overall performance. I also know that trying to guess which ones will be the best performers almost always results in guessing the wrong way.

Don't take tip and don't give tip to your friends. It's not like you are hiding something from them, it's just for their benefit only. Because market is unpredictable and if you give tip to your friend and the market will crash next day, then your relations with that friend is in trouble. 

It's human nature, that people forget the good things easily but they remember the bad things for a long time.


15. I know that as a systematic, rules-based quantitative investor, I can negate my entire track record by just once emotionally overriding my investment models, as many sadly did during the financial crisis.

In investment, before taking any decision, check all your biases. The checklist will help you here. just make a checklist and check each item from the list before making any investment decision. there is a book written by Atul Gawande on checklist, The checklist Manifesto, this book will help you to understand the importance of the checklist in investment and in life. Must read.

There is one book written on investment checklist by Michael Shearn, The Investment Checklist, Pleae do read both the books, to understand the importance of the checklist.

16. I think I know that no matter how many times you “prove” that we are saddled with a host of behavioral biases that make successful long-term investing an odds-against bet, may people will say they understand but continue to exhibit the biases.

As a human, we are prone to make mistakes. We are unknowingly exhibit to human biases and make wrong decisions. We always in constant check, while taking any investment or big decision in life, against any biases. just keep check biases and take the advantages of the biases in your favor. In the book the Art of thinking clearly, the author rolf dobelli have discussed many such biases. A must read.


17. I think I know the reason for the persistence of these “cognitive mirages” is that up to 45% of our investment choices are determined by genetics and can not be educated against.

18. I think I know that if I didn’t adhere to an entirely quantitative investment mythology, I would be as likely—maybe MORE likely—to giving into all these behavioral biases.


19. I know I don’t know exactly how much of my success is due to luck and how much is due to skill. I do know that luck definitely played, and will continue to play, a fairly substantial role.

In the world of investment, luck play a very big role. I think the 90% is the role of luck and 10% is the skill will help you to get success in investment. So don't ignore luck. Don't be overconfident about your skills.

If you start thinking that all your benefits in investing is coming due to your skill only, then you are a fool. 

20. I don’t know how the majority of investors who are indexing their portfolios will react to a bear market. I think I know that they will react badly and sell out of their indexed portfolio near a market bottom.

For a value investor the bear market and market crash is an opportunity to add more quality stocks to his portfolio. So don't \afraid from the bear market and use this opportunity in your favor.

I know the emotions play a very critical role in investing, while market is on down turn then we are afraid and sell our holdings and when market is on top we buy aggressively. This is wrong.

We must do the opposite of this behavior.

Check the cycle of market emotions:

21. I think I know that the majority of active stock market investors—both professional and aficionado—will secretly believe that while these human foibles that make investing hard apply to others, they don’t apply to them.

Human mistakes apply to both professional and new investors. We should keep a watch via checklist on this errors.

22. I know they apply to me and to everyone who works for me.

Be aware that you are not out of the market emotions if you are an  investor.


23. Finally, while I think I know that everything I’ve just said is correct, the fact is I can’t know that with certainty and that if history has taught us anything, it’s that the majority of things we currently believe are wrong.

We should always be open to new findings and new truth and once we get the new information, change accordingly. If the news facts are in align to your investment then its fine but if the new facts are against to your investment then sell the holdings immediately.

Don't be overconfident that you are always and only right. The market is a complex adaptive system and everything is depend on everything else.

Allow me to close the post with the word of Mauboussin on complex adaptive system:

The problem is that modeling complex adaptive systems is a lot messier than those other approaches.

Keep reading, keep learning,
-Mahesh