AAII Stock Ideas The Power of Patience

Once again we offer pearls of wisdom from the AAII, this time a discussion of making profits from micro-cap volatility. If nothing else, there are recommendations here for a couple of powerhouse books on investing, particularly the 2011 "What Works On Wall Street" and 2006's "Predicting the Markets of Tomorrow," both by today's celebrity guru James O'Shaughnessy.  Enjoy the weekend.  

AAII Stock Ideas

The Power of Patience: Navigating Micro-Cap Volatility With O’Shaughnessy’s Strategy

Dear Fellow Investor,    In these volatile markets, we want to make sure our valued members get access to the best information possible to help you navigate the uncertainty. This is why you may have noticed the recent enhancements to our Stock Ideas Update email.  Each week, we give you education and stock ideas that are relevant to today’s market. Markets like these expose bargains, so we want to highlight a few ideas that can help you replenish your portfolio through sound strategies with good long-term performance.  If you find this information valuable and want an edge throughout this market volatility, you can access robust stock screens and evaluations through A+ Investor, a suite of rigorous investment tools that includes diversification analysis, stock evaluators and more than 50 stock screens updated every day.

This week, we cover James O’Shaughnessy’s Tiny Titans stock-picking strategy and give you a list of stocks currently passing the AAII O’Shaughnessy Tiny Titans screen based on the approach. The O’Shaughnessy Tiny Titans strategy focuses on micro-cap stocks that meet the criteria for value, size and momentum factors. Small-cap stocks normally do well during periods of economic recovery.    For the investor with patience and the ability to withstand the higher short-term volatility and risk of micro-cap stocks, there is potential for strong long-term returns. As of March 28, 2024, AAII’s O’Shaughnessy Tiny Titans screening model has an annual gain since inception in 1998 of 24.2%, versus 7.3% for the S&P SmallCap 600 index over the same period.    Investing in Micro-Cap Companies Using the O’Shaughnessy Tiny Titans Screen    AAII tracks several screens from O’Shaughnessy, the founder and chair of O’Shaughnessy Asset Management LLC, an asset management firm headquartered in Stamford, Connecticut. The O’Shaughnessy screens that AAII has developed are based on the strategies outlined in his books, “What Works on Wall Street” (Fourth Edition, McGraw-Hill, 2011) and “Predicting the Markets of Tomorrow: A Contrarian Investment Strategy for the Next Twenty Years” (Penguin Group, 2006). It is from the latter book that the concept of the Tiny Titans approach was derived.    The Tiny Titans approach focuses on micro-cap stocks. Much research has been done regarding the success of investing in this market-capitalization category. AAII’s Model Shadow Stock Portfolio is based on a study showing that small- and micro-cap stocks tend to outperform the overall market over long periods.

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