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How to Retire Rich: Time-Tested Strategies to Beat the Market and Retire in Style


In this groundbreaking book, O'Shaughnessy applies his revolutionary analysis of the Standard & Poor's CompuStat Database to identify exactly which strategies have consistently beaten almost all active stock pickers over the past four decades - and are capable of transforming yearly $2,000 IRA contributions into more than $4 million over time. O'Shaughnessy's advice is simple: Don't buy stocks based on hunches, hot tips, or trendy advice from high-profile gurus who rely too much on gut instinct. Instead, look...
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In this groundbreaking book, O'Shaughnessy applies his revolutionary analysis of the Standard & Poor's CompuStat Database to identify exactly which strategies have consistently beaten almost all active stock pickers over the past four decades - and are capable of transforming yearly $2,000 IRA contributions into more than $4 million over time. O'Shaughnessy's advice is simple: Don't buy stocks based on hunches, hot tips, or trendy advice from high-profile gurus who rely too much on gut instinct. Instead, look at the stock market's history and apply the proven formulas that won't leave you vulnerable. By adopting O'Shaughnessy's logical, consistent approach to investing, you can dramatically increase your net worth without falling prey to fears about current market conditions and jeopardizing your financial future. Offering invaluable advice on everything from savings, to investing, to your 401(k), O'Shaughnessy tells you how to get the information you need and shows you how to develop a portfolio that's tailored to your age, financial situation, and long-term needs. His winning strategies are often so simple that they can fit on the back of a business card, making it easy for investors at every level to see how these strategies will affect their overall financial picture and start putting them into practice.
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Editorial Reviews

Analysis Journal
Conceivably, the influence of What Works on Wall Street could prove immense.
What investing strategies have worked best over the past 40 years? Ask this man.
O'Shaughnessy's study is already making waves in the investment community. . . . Could well become a classic.
Its conclusions are downright momentous. What Works on Wall Street should be required reading for everyone in the investment world, especially investment advisers and money managers.
Library Journal
The author, a statistical analyst and founder and president of O'Shaughnessy Capital Management, Inc., builds on his previous What Works on Wall Street (McGraw-Hill, 1996) to demonstrate how investing in the stock market can lead to wealth and security in one's later years: "The path to achieving investment success is in studying long-term results and finding a strategy or group of strategies that make sense." O'Shaughnessy offers strategies based on historical perspective that should beat the Standard & Poor 500 because they involve aggressive investing in not-so-well-known smaller companies. In addition to strategies, he covers good and bad points of mutual funds, making the most of 401k plans, market fluctuations, portfolio management, and a timely chapter on where to find information. This often-quoted author's opinions are presented in a readable style, with several family scenarios providing perspective. [Previewed in Prepub Alert, LJ 9/1/97.]Steven J. Mayover, Free Lib. of Philadelphia
From Barnes & Noble
The author of What Works on Wall Street turns his attentions to the retirement years and how to prepare for them, offering time-tested strategies to beat the market and retire in style. How do you create the fully funded retirement you deserve? Using his analysis of the S&P ComputStat Database of the past 40 years, O'Shaughnessy identifies exactly which strategies have consistently beaten almost all active stock pickers over the past 40 years -- those with the capability of transforming yearly $2,000 IRA contributions into more than $4 million over time. No get-rich-quick hunches here or trendy advice. This is a logical, consistent approach to increasing your net worth and investing smartly without falling prey to fears about market conditions or jeopardizing your financial future.
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Product Details

  • ISBN-13: 9780737253023
  • Publication date: 12/29/1997
  • Edition description: 1 ED
  • Edition number: 1
  • Pages: 272

Meet the Author

James O'Shaughnessy is the author of the bestselling What Works on Wall Street and Invest Like the Best.  A frequent guest on CNN and CNBC, he has been featured in the Wall Street Journal, the New York Times, the Financial Times, Barron's, Forbes, and Money.  He is the founder and chairman of O'Shaughnessy Funds, a family of no-load mutual funds.
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Read an Excerpt

How to Survive a Long Bear Market

As we've seen time and again, a successful campaign to retire rich is not for the faint of heart or weak of will. The normal gyrations of the market will constantly test your devotion to these strategies. But what will test your will the most is a long-term bear market. With luck, we may not have to face a bear market like the one that tried investors' souls in the early 1970s. But if we do, you'll need to reread every section of this book to hang on and keep the faith. Between 1969 and 1973, Reasonable Runaways, one of the strategies mentioned earlier, lost 5.5 percent a year while the S&P 500 had a slight gain of 2 percent a year. Imagine having to endure that during the first five years of your investment program. The urge to give up on the strategy would be truly overwhelming. The key to your success is to know what can happen and prepare yourself for it--before you begin your investment program.

Knowledge is power. I guarantee that people who jump into the market without an underlying investment plan will run to the "safety" of cash or bonds long before those who understand history. But as any bear market grinds on, every instinct will tell you to sell. Your stocks will be down. All your friends who never owned stocks in the first place (who will never retire rich, by the way) will be amazed at how foolish and reckless you are to be invested in the market. Relatives will try to talk you into more prudent, guaranteed investments. Worse yet, you may be drawn to the idea of market timing and say, "I'll stick with this strategy, but I'll time my purchases so that I can avoid these awful bear markets."

If therewere a simple market-timing method with a batting average as successful as that of these strategies, it would be a dream come true, and I would be the first person to recommend it to you. But there isn't one. Many investors believe that they can time their purchases and miss those wrenching bear markets, but no one I know of has effectively demonstrated the ability to do so. Market-timing newsletters scream about all the times you'd be better off on the sidelines, but their actual track records are dismal. Most of them fail to beat even T-bills, and you wind up paying a fortune in commissions as you move in and out of the market. Since no effective market-timing tool has yet been invented, you simply have to gut out those down markets.

Most important, you shouldn't care about the short term. In the grand scheme of saving and investing for a rich retirement, five years is a short period of time. When a bear market gets you down, revisit the Performance Appendix at the back of this book. You'll see that after suffering through five losing years in the early 1970s, Reasonable Runaways went on to compound at almost 24 percent a year over the next five years, swamping the S&P 500's return of 4.32 percent a year. By focusing on long spans of time and the natural ebb and flow of the market, you'll have a calm and reasonable perspective that all those around you lack.

What If One of My Stocks Tanks?

Even if you don't have to suffer through a long-term bear market, you're going to have to face the fact that over the course of your investment program, you're always going to have a few stocks in your portfolio that are real losers. It's not uncommon for several stocks in Reasonable Runaways to be down by 50 percent or more, and the urge to do something about them will be overwhelming. "Surely I can stick with the basic strategy but avoid these horrible performers," you'll think to yourself. Believe me, I've had exactly the same feeling. But I know from experience that it's foolish to start tinkering around with these strategies. The minute you start to think you can prune your portfolio of just a few bad stocks, you've reopened the door to managing your portfolio in a conventional manner. Most investors think they're capable of singling out the stocks that need to be removed from their portfolios. But, as you know, most investors don't beat the S&P 500 either.

A stock that looks like a real clunker now could easily turn around and surprise you. Goodyear Tire is one example. It was one of the Dogs of the Dow stocks in 1991, and it looked like a real deadbeat as rumors about the company not paying its dividend and firing its chairman popped up frequently in the news. Goodyear did eliminate its dividend--and the stock went up 187 percent that year! Investors who thought they were smart enough to override the strategy probably had already sold the stock and missed the gain.

I used to keep a list of all the stocks that I thought looked like bad investments even though they met my strategies' criteria. I also kept a list of stocks I thought would be great investments but didn't show up in any of my strategies. Well, guess what? The clunkers always outperformed the stocks I thought would do well. Whenever you're compelled to sell a stock that's doing poorly, remember that all the winning strategies we've looked at in this book have contained all sorts of stocks that ended up in the cellar. The 45 years of returns we've looked at include the losing stocks as well as the winners. These strategies are powerful--clunkers and all. Don't try to second-guess them.

What If I Get Elated?

Panic and fear have their flip side--greed and elation. Had you started Reasonable Runaways at the end of 1990, you might have become an intolerable boaster by the end of 1993, since you would have gained more than 144 percent in those few years, while the S&P 500 gained just 55 percent. You would feel like a genius, since your portfolio was doing three times as well as the market at a time when the average mutual fund didn't even keep up with the S&P 500.

Elation Has Its Pitfalls Too

Oddly enough, this kind of elation can be even more dangerous than the panic you feel when your portfolio is losing ground. If you've bragged enough, your friends might seek your opinion and ask you for advice about how they should be investing their money. Everyone will think you're absolutely brilliant, and you'll be inclined to agree.

Beware! When the emperors of ancient Rome paraded through the city streets teeming with thousands of admiring citizens, they had slaves at their side whispering in their ears: Sic transit gloria mundi--"All worldly glory is fleeting." Since you probably can't afford a full-time whisperer (at least not until you retire rich because of your successful savings and investment program), remember the truth of those words.

Whom the gods destroy, they first make great. The financial industry is littered with famous money managers who did extraordinarily well for a short time but then crashed and burned. Don't let success go to your head and make you think you're smarter than the strategies that made you successful.

Theresa Ramirez recently faced a problem just like this. One of her partners had done particularly well in the stock market last year buying high-flying technology stocks. And even though her portfolio was doing well, Theresa still felt a little cheated--her partner was so elated by his success! Maybe she should trust his advice and buy some of the stocks he was recommending.

But as we've seen over and over, this is the worst thing Theresa could do. When things are going particularly well, just like Theresa we tend to think they could be even better. Theresa compared her portfolio's gain of 25 percent last year with her partner's gain of 40 percent and felt she wasn't doing as well as she should. But the odds are that her partner will soon join the vast majority of investors who get burned when trying to outsmart the market. Her partner currently thinks he's a genius. The market will probably soon teach him otherwise. There's always someone with a portfolio that's up 40 percent, who almost always thinks it's due to his or her brilliant stock picking. More often than not it's just dumb luck. The minute you think that you can outsmart the market, remember the sobering fact that 80 percent of the brilliant, well-connected, and superinformed money managers on Wall Street can't beat the S&P 500 over the long term--primarily because they believe that they can outsmart the market in the short term.

Stay the Course

When you become elated about your portfolio's performance, remind yourself of two things. First, you're once again focusing too much on the short-term performance of your investments. The whole point of strategic investing is to put your long-term investment strategy on automatic pilot and let the time-tested techniques do their stuff. Just like panic, elation is an emotional trap that keeps you from thinking clearly. When the market starts moving against you, you'll probably panic even more than other investors do and want to abandon your strategy even faster.

Second, and on a more positive note, remember that when these strategies outperform the S&P 500, it's the rule, not the exception. The reason you put your money in Reasonable Runaways or Leaders with Luster in the first place is that they do much better than the S&P 500. This is quite normal, not something you deserve to jump up and down about. You're using simple models that have nothing to do with your brilliance and everything to do with empirical research and great batting averages over long periods of time. Stay humble, keep your emotions in check, and you'll be able to stay the course.

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Table of Contents

Ch. 1 What Is Rich? 1
Ch. 2 The Strategy Revolution 20
Ch. 3 The Strategies 44
Ch. 4 Mutual Funds: What to Look For - and Look Out For 74
Ch. 5 How to Get the Most Out of Your 401(K) 92
Ch. 6 Portfolios for the Rest of Your Life 107
Ch. 7 Pitfalls, Roadblocks, and Excess Baggage 135
Ch. 8 Where to Find the Information You Need 153
Ch. 9 The Brokerage Revolution: You Win 167
Ch. 10 The Simple Way 181
Performance Appendix 191
Index 263
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