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As you read the interview, one theme you may notice being repeated is when O'Shaughnessy states that you should always be fully invested in the stock market. His reasoning is based on a particular study that indicates that overall performance is severely lowered if you miss key updays in the stock market. Now, this may sound like sacrilege to you market timers, and you may feel compelled to take pen in hand and dash off a quick retort in my direction; please don't cite other studies that show better risk-adjusted performance by missing the big declines. I fully understand the justification for market timers managing money by offering such services and track records.
What I see in O'Shaughnessy's work is the emphasis and commitment to following procedures for the investment decision process. It may not be for everyone, but the case he makes is a compelling one. There is much to be gained in moving away from doing your trading and investing on a case-by-case basis and toward developing and following set procedures.
Using tested procedures deals with the most challenging aspect of trading or investing. Every time we pick up the phone to place a trade, we face uncertainty. You may think you know how the future will unfold, and you may be right from time to time, but for us mortals, the market is indeed an uncertain environment. The best way to cope with uncertainty is to perform detailed analysis first so you can move from total uncertainty to some reasonable estimate of potential performance. And that information can only be gleaned by a considerable amount of research. James O'Shaughnessy, and others like him, have done such research for stock investors. You need only to review his work to ensure that his approach matches your goals as well as your risk and reward tolerances.
O'Shaughnessy's work is really more suited for the long-term investor; elsewhere in this issue are more short-term trading concepts. However, my advice is the same in either case: You need to thoroughly review any technique to make sure that it matches your own goals and tolerances. And we at STOCKS & COMMODITIES are working to help you with both.
