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Predicting the Markets of Tomorrow : A Contrarian Investment Strategy for the Next Twenty Years Hardcover – Bargain Price, March 2, 2006


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Product Details

  • Hardcover: 272 pages
  • ISBN-10: 1591841089
  • ASIN: B000GUJH8U
  • Product Dimensions: 9.1 x 6.5 x 1.1 inches
  • Shipping Weight: 12 ounces
  • Average Customer Review: 3.8 out of 5 stars  See all reviews (11 customer reviews)
  • Amazon Best Sellers Rank: #2,320,977 in Books (See Top 100 in Books)

Editorial Reviews

From Publishers Weekly

A Bear Stearns executive and bestselling financial adviser, O'Shaughnessy (How to Retire Rich) is a self-described "passionate advocate" of paying attention to the stock market's historical trends rather than impulsively reacting to short-term fluctuations. Though the technology bubble of the '90s led many to believe the financial rules had changed, O'Shaughnessy still believes that the soundest investment lies not in chasing the fastest-growing big stocks, but in careful management of holdings in small and midsize companies, with large companies selected for value rather than expansion. Buttressed by an array of financial charts, he discusses how to create a set of investment portfolios—some with as many as 25 separate stocks—that with annual tinkering will yield effective results over a two-decade period. His advice tends toward technical precision; when discussing intermediate bonds, for example, he recommends a laddered portfolio that continually frees up assets for potential reinvestment in the event of changing interest rates. Although he speaks briefly to the emotional reasons why most investors are unable to resist the allure of short-term gains, O'Shaughnessy is primarily concerned with the cold, hard facts that will trump sentiment, and he lays out his positions in a straightforward and effective manner. (Mar. 2.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved. --This text refers to an out of print or unavailable edition of this title.

From the Back Cover

Praise for James P. O’Shaughnessy:
"What investment strategies have worked over the past forty years? Ask this man."
—Barrons

"You ignore his message at the risk of your own future wealth. His trailblazing research suggests new ways to invest."
—Kiplinger’s Personal Finance Magazine --This text refers to an out of print or unavailable edition of this title.

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Customer Reviews

I wish I could have paged through this book before I got it.
Befragt
Fixed income securities, even inflation protected treasuries (TIPS) are currently producing returns that, at best, break even.
Leonard J. Wilson
Large cap value stocks with higher dividend yields will move consistent with forecasts.
Golden Lion

Most Helpful Customer Reviews

30 of 31 people found the following review helpful By Leonard J. Wilson on March 20, 2007
Format: Hardcover Verified Purchase
In Predicting the Markets of Tomorrow author James O'Shaughnessy offers his ideas on the investment environment we are likely to encounter over the 20 years from 2006 through 2026. He selected twenty years as this time horizon based on extensive analysis of market behavior over approximately the last 200 years. His logic goes something like this:

1. When calculating returns from any investment strategy, it is essential to focus on the real return, after accounting for inflation.

2. Approximately two hundred years of stock market data (1809-2004) show that real returns have been highly erratic, especially when analyzed over periods of a few years or less.

3. However, when one calculates returns using overlapping periods of 20 years, they become much smoother. Stocks have rarely lost value over a 20 year period.

4. There are probably some underlying factors that cause returns to be smoother over 20 years. O'Shaughnessy suggests two. First, many investors don't really get started saving and investing until their mid 40s, giving than about 20 years to accumulate assets before retiring. Second, retirement at 65 together with a life expectancy of 85 suggests retirements (and asset depletion cycles) that last about 20 years.

5. If one decomposes the 20 year average returns of the S&P into the returns of the growth and the value stocks that comprise the S&P, these two groups have tended to move out of cycle with each other. Growth stocks occasionally have produced the higher return, as they did in the 1980s and 1990s. More often, value stocks have outperformed value stocks.

6. The returns of these three groups (S&P, Growth, and Value) all seem to revert to their mean rates of return.
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40 of 52 people found the following review helpful By Amazon Customer on September 3, 2006
Format: Hardcover
Not recommended. This allegedly "contrarian" book argues that the hot trends of the last 6 years (outperformance by small and value stocks) will continue for the next 20. I find any argument for the continuation of well-established trends inherently suspicious, but purchased this anyway to challenge my notion (based on other sources, mostly Morningstar) that large growth is attractively valued right now (even if French & Fama are right about small & value being best in the long run).

I didn't find much to challenge my view. The author's argument seems to be based entirely on reversion to mean, without any consideration of current valuations (P/E, Price/Book, Price/Sales) of the different market segments.

Two aspects raise the specter of data mining. First, the reversion analysis is based entirely on 20-year rolling data, but the grounds for picking 20 are thin. He says it's a typical holding period, but so are 10 and 25; I see no curiosity displayed whether the results would hold if different periods were used. Second, the stock picking rules laid out in Chapter 8, singled out for praise by another reviewer, give the appearance of having been selected from thousands of possible rules. I can't tell if these were previously published and have worked since then, but the backtesting is ALWAYS spectacular, and if enough rules were tried then the success of these was just random chance.

The author's portfolio recommendations are all domestic equity, and compared to a strawman historically bad allocation. Bonds are ultimately dismissed, although the chapter devoted to them contains some good information. REIT's, international investing, and commodities are skipped over in favor of advice to hire an advisor (which the author happens to be).
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26 of 34 people found the following review helpful By E. Chan on March 29, 2006
Format: Hardcover Verified Purchase
I have read many investment books -- this is one of the best. It offers clear guidance and solid research to back up the predictions and claims. The claim that small-cap value stocks will outperform all the rest is backed by careful historical analysis and testing. I especially like the fact that the research done is for an appropriate time frame for those of us worried about retirement -- 20 years, and that "real returns" -- inflation-adjusted returns -- are used, instead of nominal returns that are most often cited by books and websites. The only hesitation I have in following the advice in this book is to invest in 10 large cap value stocks -- one of them, like GM, can easily go bankrupt and wipe out 10% of the portfolio value. I personally would stick to ETF, unless I have enough capital to hold at least 25 stocks in my portfolio. All in all, good, clear, and simple investment advice with serious research.
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28 of 37 people found the following review helpful By Randy A. Colvin on March 16, 2006
Format: Hardcover Verified Purchase
Chapter Eight of this book is worth the price of the book. The chapter is a simplified version of some of O'Shaughnessy's best strategies from his prior book, What Works on Wall Street. The book is a good introduction to the practice of investing. It lays out a strong case for using a disciplined process in choosing investments (rather than hunches). One's disciplined process should be backed up by historical data (not based on what's worked best in the most recent years or even decade). The six stock selection strategies featured in chapter 8, including the Dogs of the Dow, greatly peaked my interest. The only suggestion I have now is: James, get in touch with PowerShares to market ETF's for each of your featured stragies. I, for one, would buy them. Or create a mutual fund in which you implement your Custom Allocation (from page 212) on our behalf. This fund would weave together all six of your featured stategies. You convinced me that this is a powerful way to invest. Great book.
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