Lead-Lag Live: The Last Sustainable Edge With Jim O’Shaughnessy

There are many investment strategies that investors can employ. The most popular one today is passive investing, where investors simply buy an index. However, since a market index is weighted, that means investors are largely invested in the same large-cap stocks.

That strategy also makes it more challenging for investors to generate excess returns. On Wall Street, the concept is called alpha. While the strategy isn’t perfect all the time, it tends to hold up well.

Investors could see better returns with other strategies. But those returns tend to work well only at certain periods of time. Looking at five-year trailing returns can show a trend better than a one-year period.

When following an investment strategy, results are measured in years, not months. Investors who jump between strategies that been performing well may not see great results. Instead, they’ll likely lag the market. It’s investors who stick with a strategy over time who do consistently well with it.

In the short term, it may be tempting to give up on a strategy when it doesn’t seem to be working. A majority of quantitative investors will override their models during a time of market panic.

As long as investors find a strategy that works for them and stick with it, they can develop a sustainable edge.

To listen to the full interview, click here.