Follow the Leaders to Investment Glory

Physician's Money Digest, July 2005, Volume 12, Issue 10

What Works on Wall Street

Wall Street professionals usescreening models to developa systematic pattern fortheir stock picking strategies,and you should too. Portfolio managerJames P. O'Shaughnessy is responsiblefor the most comprehensive study ofinvestment models. O'Shaughnessy determinedthat a disciplined long-term approachleads to outperformance of themarket by significant margins on a risk-adjustedbasis. These findings are illustratedin his book, (McGraw-Hill; 1998).

Contrarian

Investment Strategies: The Next Generation

David Dreman, another investmentguru, addresses value vs growth investing.In his 1998 book, (Simon & Schuster), Dreman arrivesat investment conclusions that are similarto O'Shaughnessy's.

Investor's Business Daily

How to Make Money in Stocks

William O'Neil, founder and publisherof , createda database to compare the characteristicsof the 500 biggest percent gainersfrom 1953 to 1993 to find a commonthread. (McGraw-Hill; 2002) illustrates theauthor's stock picking strategy, which iscalled CANSLIM, and describes the sevenbasic characteristics he says are necessaryfor a stock to achieve huge gains.

The American Association of IndividualInvestors conducted a study ofleading investment strategies and foundthat if you used a value and growthstrategy or a small cap strategy, youwould have vastly outperformed theS&P 500 over the past 5 years.

The question remains, what should aninvestor do? Certainly, there is no sense inreinventing the wheel. Take solace thatthe experts are knowledgeable in theirfield. So whether you decide to buy abook, hire a money manager, subscribe toa newsletter, or create your own investmentmodel, you should feel confidentthat the strategy you choose seems bothlogical and reasonable. If it doesn't, thenyou're better off leaving it alone.

Of course, no stock picking strategywill work in all markets, but a good onewill help you keep gains and temper losseswithout having to clone Warren Buffett.Most importantly, remember that screeningis just a first step and that no screenwill correctly identify all applicable qualitativeand quantitative characteristics.Finally, when you do find a strategy thatyou not only like but also believe in,remain faithful and stick with it.

is the president and

founder of Red Mountain Research

Company, an Internet-based firm.

She has been a money manager for

large and small firms in the United

States and abroad for 20 years. Ms.

Helm created Red Mountain to offer frank equity

management advice to the public. She welcomes

questions or comments at contact@redmountainresearch.com, or for more information visit www.redmountainresearch.com.

Colleen Helm