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(© Brendan McDermid / Reuters)
(© Brendan McDermid / Reuters)

Earlier Discussion

What Jim O'Shaughnessy expects in 2012 Add to ...

Where should investors look for opportunities in 2012? What investments and regions right now are signalling buys? Jim O'Shaughnessy, chairman and CEO of O'Shaughnessy Asset Management, shared his insight and answered your questions in a live discussion Thursday.

As a quantitative money manager, Mr. O’Shaughnessy often delves into historical patterns to find today’s opportunities. He wrote the bestselling book What Works On Wall Street. Two of his mutual funds – the RBC O'Shaughnessy U.S. Growth Fund II and the RBC O'Shaughnessy All-Canadian Equity Fund – received Lipper awards earlier this year for their performance in 2010.

A full transcript of the discussion follows:

Darcy Keith - Good morning everyone, and welcome. I'm Darcy Keith, an editor with Globe Investor. Jim O'Shaughnessy is here with us and ready to go Thanks for joining us today Jim

[Comment From Jim O'Shaughnessy]

Good Morning everyone.

Darcy Keith - Just to start things of Jim, I'm hoping you could give us your general outlook for 2012? Are stocks looking undervalued heading into the New Year?

[Comment From Jim O'Shaughnessy]

We tend to try to take a longer look to create our expectations for the equity markets. We did a study of the 50 worst 10 year periods since 1876 and found that the 3 5 7 & 10 years following them all equity returns were positive. Since February 2009 was the second worst of the 50 periods we are expecting equity returns to be strong in the long term.

[Comment From Steve in Upper Thornhill ]

What's your take on our Canadian Banks as far as valuation and 2012 growth amidst what is happening in Europe and their valuations relative to the rest of the global banking sector?

[Comment From Jim O'Shaughnessy]

Currently we are seeing strong dividend yields within the Canadian banks.... For example Royal Bank of Canada currently has a yield of 4.38%....

[Comment From Jim O'Shaughnessy]

Where as the US Treasuries are providing significantly lower yields

[Comment From Jerome ]

What is your outlook for the US market vs. Can. market looking out 5 years

[Comment From Jim O'Shaughnessy]

In the US we see the next five years as being strong for US equities, particularly market leading companies with high dividend yields and strong buybacks of the stock. We also think that growth stocks will have been hit hard over the last several years will see a revival.....

[Comment From Jim O'Shaughnessy]

As for the Canadian market, continued strong demand for resources should be good for the Canadian stock market.

[Comment From Fernando ]

With a five year horizon, what sector/s would you recommend for an individual investor?

[Comment From Jim O'Shaughnessy]

Telecommunications are currently offering very strong dividend yields globally and consumer discretionary stocks, particularly those that serve the lower end of the market.

[Comment From anne ]

jim, by looking at the long term patterns of the stock market since 1876 you are looking at a period when the west, north america and the us in particular dominated the world economy, even allowing for the fact that that may remain the case in the next few years and even allowing for your rejection of the view that "this time is different" wouldn't the decline of the west and north america's influence in the world make this time different?

[Comment From Jim O'Shaughnessy]

We think that the study still makes a lot of sense given that stock market cycles are driven by human behaviour. When we get wildly optimistic, we tend to drive valuations up and yields down...

[Comment From Jim O'Shaughnessy]

And when we get very negative, we see valuations driven down and yields up, which is generally good for stock investors...

[Comment From Jim O'Shaughnessy]

We also think that the overall negative assessment about the West is over done. Remember in the 1980s when everyone said that Japan was going to take over the world? It didn't happen and I think that within the U.S., we can again revive the economy so that it again is very productive.

[Comment From Omid ]

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