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O’Shaughnessy Asset Management’s White Paper (July 2019)

A Stamford-based asset manager, O’Shaughnessy Asset Management recently released its white paper with the title “The Earning Mirage: Why Corporate Profits are Overstated and What It Means for Investors”. You can download a copy of the letter below. The quantitative money management firm was founded by Jim O’Shaughnessy and it manages around $6.0 billion in assets under management. In the white paper document, the fund presented its research on a new way of identifying the profitability and valuation of corporations, tackling a huge disparity in corporate capital allocation.

“In this piece, I’m going to introduce a new methodology for measuring the profitability and valuation of corporations. In applying the methodology, I’m going to encounter a massive discrepancy in corporate capital allocation. To explain the discrepancy, I’m going to attempt to show that reported company earnings are systematically overstated relative to reality. After identifying the likely causes of the overstatement, I’m going to explore their implications for individual stock selection and overall stock market valuation.


The piece will contain six sections, listed below with navigation links:

  • Section 1: The Problem with Conventional Equity-Based Measures of Profitability and Valuation
  • Section 2: Introducing Integrated Equity
  • Section 3: The Profitability Gap
  • Section 4: The Overstated Earnings Hypothesis
  • Section 5: Implications for Investors and Allocators
  • Section 6: Using the Integrated Equity Methodology to Value Markets and Individual Stocks

In the next several paragraphs, I’m going to briefly summarize each section, highlighting charts and tables that are likely to be of interest to readers.”

You can download a copy of O’Shaughnessy Asset Management’s White Paper on this link here.

You can also see the list of our 2019 Q2 investor letters and download them on this page.

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