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Author: TomEaton One star, 50 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1482  
Subject: Re: 'What Works on Wall Street' Date: 8/13/1998 8:33 PM
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I just finished this one, fresh from the nearby university library. I have to agree, it's got a lot of useful information in there. I might have to read "How to Retire Rich" now, because from your posts it sounds like it might answer some of the criticisms I have with "What Works." For a somewhat inexperienced individual investor like myself, I started to get a little frustrated with O'Shaughnessy when he started talking about things like stocks with low price-to-sales ratios. I mean, I can understand the concept just fine, but he never explains where you can find that kind of information or how the ratio is calculated or what kinds of numbers would be considered low.

One thing the book devotes an entire early chapter to, and which I think many Fools should re-read every now and then, is the tendency to abandon proven strategies because they have a bad short-term run. If you go to the International Paper message board here at the Motley Fool, for instance, you'll see lots of messages from people who picked up IP as part of the Foolish Four strategy (like myself) and are upset because it's done poorly. They want to keep the rest of the Foolish Four but dump IP. What O'Shaughnessy stresses is the following maxim: Don't think you're smarter than the system. If you know you have a winning strategem, resist the temptation to screw around with it because you suffer some losses, as you inevitably will with any system. By doing so, you're making the same mistake the mutual fund managers make who underperform the market constantly.

I would add, in a related vein, that if a few losses over the short term make you want to abandon a system, it probably means you weren't entirely convinced that the system was sound. If that was the case, then WHY DID YOU SINK ALL YOUR MONEY INTO IT?

Back to O'Shaughnessy. If you love charts and graphs, buy this book. The edition I read was 350 pages, and I think about 150 pages or so are text.

I better get How to Retire Rich. It sounds like it's worth a look too.

Tom Eaton
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