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Jim O'Shaughnessy

lines on the record: 99
first: 2024-05-09
most recent: 2024-05-09
sittings or episodes: 1
sources: podcast

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“Huge transition. And so we think that another aspect of research, right? When we got the idea, you know, we think we're missing something here. That's what resulted in the paper about brand value and goodwill and all those things not being taken into account by investors at all. And so we found ways we could do that with factors and improved the efficacy of the underlying models significantly.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“When we took a look at that, we found that you could figure out a way to price that into the model. So you are absolutely right. This is one of my buggaboos. Things like GDP, all of the metrics that we continue to report and get obsessed about. Basically, they've lost a lot of their meaning because they were designed for the world you just articulated. They were designed for manufacturing. They were designed for physical things. And we've moved off that for many, many decades from Adam to Bit.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“I think there's more than some truth to that. We published a paper called Veiled Value, and it looked at the idea that brand value, that all of the items that you just delineated were not being captured in trademarks, logos, research and development straight across the board.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“You could get really different numbers if you went to Bloomberg or if you went to Reuters or if you went to Dow Jones or any other innumerable providers of data. And so that was another huge project for us and also part of the data set that we're talking about. One of the other things that I was widely hated for by my research”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Say if we changed it and walked out onto Lexington Avenue here and we found a food truck right And we went up long line, everything looks good, and we talked to the owner, and we said, how much are you clearing a year? And he says, well, I'm clearing $100,000. And we're like, well, would you take a buy offer from us? And he goes, yeah, you can buy it for $10 million. You and I are going to go, get out of here. There's no way we're going to buy this. Right. Well, change it to a stock ticker. There's a lot of stocks trading at that kind of multiple. And so when you look at the underlying strategies, they make intuitive economic sense. And so the data set that you're using becomes of paramount importance. The other thing I found was that, and this one disturbed me a little. I haven't looked at this recently, but when I was doing it several years ago,”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. It's the book, is it much value, right? Exactly, exactly. So we did find some learnings where we jiggered with the composites that we use. That's another thing we do. We don't use a single factor. In my first version of What Works on Wall Street, we would sort down for the final portfolio on a single factor. And we found that that wasn't nearly as effective as a composite of factors. Again, a lot of people, the old joke about quants, right? What do you guys do golf all day? You know, you're just running your models. Well, we don't golf all day, but what we do do all day is research the underlying models. What we're always trying to do is improve them, but it's evolutionary, not revolutionary. Listen, the foundations are very, very similar. By the way, they make a lot of sense too.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Generally speaking, same kind of results, right? With the exceptional price to book, we actually took price to book out of our composites. You know how we have the composites for value and momentum and all of those things. And we took price to book out because of the research that we did that covered the Great Depression in the 30s. You know and I know if you've taken any finance courses, price to book previously had been used as a proxy for likelihood of bankruptcy, right? Well, guess what? During the 30s, a lot of those low price to book companies went bankrupt.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Street. Yeah. And also wasn't nearly as thorough as, say, the CompuStat is. In fact, one of the things that we were doing before Franklin Templeton approached us is we were literally digitizing old Moody's manuals. They go back to 1900. And what we wanted to do was marry into the CRISP data all of the fundamental factors. That would have given us the ability to run a 1900 through 1955 when CompuStat begins test. We ran some test runs. We did price to book and we did a couple others. And what we were finding, and won't surprise you.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Price history, and it also tries and generally succeeds to include all of the names that might have been around trading on the Amex or the New York Stock Exchange or Nasdaq. But the challenge is a guy by the name of McQuarry wrote a really compelling paper talking about how a lot of the historical data not CompuStat, but further back, right, in the 20s and 30s.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, so CRISP comes to us from the University of Chicago Center for Research and Security Pricing. The downside of CRISP is, first off, I love CRISP. We used it in the most recent edition of What Works, but it doesn't have enough of the fundamental factors attached to it.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“So we use the CompuSat universe. They cover virtually every company that trades, both year on American exchanges and elsewhere. And it is kind of the gold standard, really, in terms of databases.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“And I think that ultimately we might look back 10 years from now and have the thought, can you imagine that people just bought packaged products? I mean, like, my God, no tax advantage, none of the customization, none of the immunization for concentrated positions that I have. And so we definitely think that this is a way of investing that, well, you know, once a client sees their portfolio under Canvas and with the customization, it's really, really hard to go back to thinking, you know what? I think I'll just go with five mutual funds or five ETFs. I don't really care about much of the other. I think that, you know, these things take time, but I mean, again, your firm is a classic example here. You were able to use custom in a way that was good for your firm, good for your clients. Right. And, you know, the clients that we speak with.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“And we felt really proud about that because it isn't too often that you're able to invent kind of a new category of investing. And as we chatted about it and talked it out, we're like, you know, we're at an inflection point here. We are a relatively small boutique, even though this is working really, really well. If we want custom indexing, custom portfolio creation to really make the big time, it probably makes sense for a much larger asset manager with all sorts of advantages that we did not have to take it and run with it. We let that be our guide, and after doing quite a bit of due diligence on the people at Franklin, we were like, okay, let's negotiate about selling the firm to them.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Not at all. We were, it's a funny story. We almost got kind of a cold call from a gentleman at Franklin Templeton. I was sort of like, give it to Chris Loveless or, you know, who's the president of the firm. And ultimately, Patrick spoke with him and came into my office and he's like, hey, Franklin Templeton is really interested in Canvas. I'm like, okay, they want to use it? No, no. They want to buy it. And I'm like, okay, well, let's do a due diligence on Franklin Templeton. They're massive, as you know, I think trillion and a half in assets under management. And we were really having great results, as you know, with Canvas on our own. We thought about it for a long time. And, you know, we really want it custom indexing to be a new category of asset management.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“They were, but they were not nearly as enthusiastic as we anticipated they would be. There were a few advisors that we were working with who worked specifically with founders and early employees who had a lot of options in that particular and usually tech. But we also did work and do work with a lot of people who just amassed through employment a huge position in their particular company. And they wanted to have the rest of the portfolio be built to complement and offset, if you will, any further investments over there. So it's worked actually quite nicely.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Tech exposure only in this tech, which is like hardware, for example. That I can do. And that type of use case would work hand in hand with the tax loss, making it a much, much more efficient, more money in the investor's pocket in terms of final outcomes with the portfolios.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“To be able to make that function properly. And as we worked with firms like yours, it became very, very clear to us that that was going to be a big deal in Canvas. So we wanted that algorithm to work perfectly. But as you also note, we wanted the nearest neighbor, if you will, that would replace that stock to not affect the overall metrics of your portfolio. So it's going to look act and perform very much like the earlier portfolio, but you've already taken that wonderful tax loss so that you can offset the gains from elsewhere. The other use case that we thought would be number one was, you know, you have a concentrated position, let's say Google, right? Don't give me any tech exposure or give me”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. And, you know, we're just basically making math work for us. And because the entire thing is operated within the Canvas architecture, after getting the algorithm, which was non-trivial, what do you mean by non-violent?”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“So essentially, what it does is we had to build a non-trivial algorithm that could monitor every portfolio we were managing on behalf of clients. And as you know, they can go all the way up, maximize tax losses, or all the way down. Don't worry about them. So, for example, you wouldn't care about it in an IRA. Right. Any qualified account. Right, right. But the purpose was that we felt...”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Yep, absolutely. But the thing with the social style investing, we wanted you to be able to reflect your clients' unique needs. And there really wasn't anything like that. I don't know if there is now, but I haven't seen anything like that.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“The tobacco guns, those are pretty large groups where majority of investors want nothing to do with them. But the other thing that's cool about our dials on Canvas, let's say that Ritholtz has a wild-eyed libertarian walk in who happens to have a billion dollars, and he says, you know what? I want the gun manufacturers. I want, I'm a big Second Amendment guy, right? Or I want the pharmaceuticals. Give me them. Give me gambling and alcohol. Well, and the joke there was that my first company, O'Shaughnessy Capital Management, we used to keep a joke portfolio, which was called the Eat, Drink, and Be Merry for Tomorrow You Die It Killed.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“I felt that that was really, really important because everybody has different ideas, as you point out, the Catholic bishops wanted to exclude certain things. Others might want to include certain things, actually felt it would be very arrogant of us to determine what good social investing was because we had managed money for a variety of religious institutions. And guess what? They all have different takes on what they want to see. We did one where, for example, you couldn't buy any company that did anything with animals with eyes. That was an interesting one. But then on the other hand, we had a client who wanted to see more female board members and females in the C-suite.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, first of all, we call it custom indexing as opposed to direct. And the reason I make that distinction is because, as you point out,”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“They did. They did. Now, remember, you introduced me as chairman of OSM. I'm no longer. Yeah. They let me retire. And actually, Patrick is now chairman emeritus over at OSAM.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh, totally, totally. Microcap is an amazing place if you've got the right tools to sort through the thousands of names in the microcap universe. You would not want to buy an index of microcap stocks. For the most part, they're microcaps because they kind of suck. However, there are so many diamonds in the rough in microcap that if you have a strategy like a quant strategy that can sort through these thousands of names, you can do extraordinarily well. I love the strategy.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Venture capital or both. Both, really. Private equity closer because the micro cap, I love microcap investing. The only real reason that we offered that was because I loved it so much. Really? And the data.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, actually, we wrote that also. Yeah, we wrote a paper saying that it was the poor man's way to get exposure to private equity.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“And Patrick oversaw that. And then he walked into my office one day and he goes, you know, Dad, we've been using the Death Star to kill a mouse. And I'm like, okay, I like the metaphor, but what do you mean? And he started talking about AWS, talking about Netfolio. And he's like, we have the perfect tech now that our clients, Ritoltz being one of them, could use. And I'm like, brilliant, let's go with it.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“I was, I really do have to give my son Patrick the credit for resurrecting the idea. Because when we were at OSAM, I said, listen. We left Bear right into the great financial crisis. And I put the team together and I'm like, I don't think that we're going to be able to sell many long-only portfolios after the market has collapsed by nearly 50%. So let's spend our time developing internal technology that works the way we work. The off-the-shelf stuff really wasn't cutting it. And so the project to get there was multi-year.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Totally. And basically, the idea was it was the first online investment advisor And the reason that we thought it would work so well was personalization, tax management, all of those things. So, for example, we would, they were all run by quant models that we had developed, right? But it gave the user the ability to say, let's say they're anti-smoking, right? And Philip Morris is one of the selections. They could just check, nope, don't want it. Up comes the next stock that meets the criteria. And so it had a lot of really great features. But the tech was not quite there yet.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“That's true. That is quite true Absolutely. So I think Well, it's really funny because I made a couple, well, I made more than a couple mistakes, but one of the big ones I made was we design Netfolio as a B2C company. So we called, we were taking on at the time mutual funds, which were dominant. We didn't have ETFs while we had them, but they were in the very early days. Very, very early days.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“99, yeah. Really? Well, of course, you know, the really funny story here is in April of 1999, I wrote a piece called The Internet Contrarian. And in that piece, I said, 85% of the companies currently extant in the Internet space are going to be carried out of the market feet first. I've never seen a bubble like this in my history of investing. And what did I do next, Barry? I started an internet company.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“That's funny. I spent the next two years after that trying to convince reporters that I really didn't know anything. Why I left Bear was because I felt that I really wanted to be on my own again. I really wanted to be able to just talk about quantitative investing. Bear was a boutique, so there were a lot of different managers. I liked them all, thought they all were great, but I really, really wanted to focus just exclusively on quant. And secondly, we had upgraded a lot of our systems to the idea that would become Canvas, right? Because remember Netfolio was our first try at that.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Totally. He was very open to it. We ended up putting together a separately managed account platform that the brokers embraced. They loved it because literally they did what they did well, which was calm the client during bad times, try to keep them from getting too excited during great times. But they also loved the idea that it had a very explicit explanation for why they were putting that client in that portfolio. So that was a lot of fun. By the time I left Bear, my group controlled about 70% of Bear Stearns' asset management long only.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“And a lot of the brokers had done pretty poorly because they were in a lot of those names. And so I convinced Steve Dantis, who was then head of private client services that wouldn't it be better if we did a packaged portfolio, a separately managed account, and we offered at one time I think we were all the way up at 10 to the brokers so that they could use a more systematic time-tested way of investing for their clients.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely. And let me just say Bayer was really a great company. Very unfortunate what happened to it during the financial crisis. But the reason I love Bear is, you know, a lot of big banks talk about being entrepreneurial. Bear Sterns really was. And essentially, if you were doing your thing and playing by the rules and doing well, they let you alone, which was pretty important for me because when I got there, it was right after the dot bomb.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. And so, but we found that value actually works now it hasn't for a long time. But we also found that large stocks with high shareholder yield, i.e. dividend yield plus buyback yield, was an excellent way to identify big stocks that are obviously much more conservative than the smaller fry in the small cap world.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“But what happened was a lot of really great stocks during the bear market got pushed way low in price. And so people, when the market was recovering, jumped on those stocks. They were like, I can't believe I'm getting, you know, these earnings at six times earnings for an IBM or a Qualcomm.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Not a lot, thank God, but momentum inverted and the stocks with the worst six or 12 month momentum actually did vastly better than the ones with the best. And if you think about it even for a minute, it makes sense, right?”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Momentum, yes. Okay. On the growth side, we found momentum works really, really well. As we continued the research, we found, okay, there's all sorts of caveats. So for example, we learned after a severe bear market, i.e. one in which the market had declined by forty or more percent. Not a lot.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, we found that on the value side, smaller value stocks that had some catalyst and had turned a corner, and their prices had started to go up was a beautiful strategy.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“That's great. Yeah. Because some of the early academic studies were, they had a lot of survivorship bias. They didn't properly lag for when you actually knew a number. So they just assumed, right, well, there's the number on March 31st. I'm going to use that number. Well, you didn't really know that for most of history until maybe May or June.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, absolutely. And also, not just the full market. It was also any company that had been around but went bankrupt or got taken over. The very, very needed research database on CompuStat.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“I wrote a first book called Invest Like the Best, in which I basically showed you how you could clone your favorite portfolio manager by taking his or her stocks, putting them on a big database like CompuStat, seeing how they differed from the overall market, and then using those as factor screens to get down to a portfolio that looked at it, and most importantly performed like your favorite manager.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Simple things like what's the price? What's the dividend? What's the price to earnings? Book value, et cetera. And I found a definite. Trend, right? I found that buying the 10 stocks in the Dow with the lowest PEs from nineteen like 35, I think I started through when I was doing it. And this would have been about 1980, absolutely decimated the 10 highest PE stocks. Wow. So wow, I love this. In the meantime, I had computers. And the only reason I actually got to write what works on Wall Street was because Ben Graham didn't have computers. If he had had them, I would have had no chance because he would have done it. Basically, what I wanted to see was, is there any rhyme or reason to all of these reasons people say they like or hate a stock? Where is the proof? Where is the empirical evidence that, say, buying the low PE stocks from the Dow works very well over many market cycles?”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“But so I started doing research Essentially, the Dow 30 because it was manageable. 30 stocks. I could list by hand, showing how old I am, because you literally, there were no computers that we could use at the time.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“The winter was tough. Yeah. Yeah. Well, if this were the old USSR, that is where all the political prisoners would be. Send them to Minnesota.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Kids, they don't know anything. Exactly, exactly. It's the chairman. How? It's almost as if you were there. That bug got implanted, that mind worm got implanted in my brain.”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I was always fascinated about markets in general, which stemmed from a very angry conversation between my uncle and father about IBM. And I had just been allowed to go to the adult table. And I was sitting next to my dad, and he and my uncle John were going hammer and tong about whether IBM was a good company or not. And I was listening. And it was all about the chairman. It was all about, you know, things that I looked at as kind of soft intelligence. Squishy. Squishy. And so I just thought I asked at the dinner, I said, well, would it make more sense to like look at how much money they're making and what their earnings are and how much you have to pay for that? And they both just literally glared at me”
2024-05-09 · Masters in Business · Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks · IDENTIFIED FROM THE TRANSCRIPT · source