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Capital Allocators · March 11, 2024 · 56m

Jim O'Shaughnessy: What Works on Wall Street 30 Years Later

Jim O'Shaughnessy

Jim O'Shaughnessy revisits the thesis of his classic book with Ted Seides: quantitative value and momentum strategies still outperform, but the edge has narrowed because more capital chases the same factors.

Canon

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Stoic dichotomy of control — O'Shaughnessy argues that quant investors must accept they can't control factor returns (outside their control) and focus on process discipline (inside their control)
O'Shaughnessy applies the Stoic framework to quant investing: you can't control whether the value factor outperforms this year. You can control whether your implementation is disciplined, your costs are low, and your rebalancing is systematic.
ClaudeChatGPTGemini

Highlights

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Factor investing still works but the returns have been arbitraged down — the strategies that earned 5% alpha in 1990 now earn 1-2% because too much capital chases the same signals
O'Shaughnessy presents updated data: the value factor, momentum factor, and quality factor still generate positive alpha, but the magnitude has declined as hedge funds and quant firms deployed trillions into factor strategies. The strategies work; the returns are smaller.
ClaudeChatGPTGemini