David Dreman the original contrarian, and one of the best value investors ever, announced that he will be scaling back his role earlier this week.
According to Bloomberg News:
David Dreman, the fund manager best known for against-the-grain bets on stocks he deems cheap, will step down as co-chief investment officer of Dreman Value Management LLC.
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E. Clifton Hoover, who joined the firm in 2006 as co-chief investment officer, co-director of research and managing director, will succeed Dreman, 74, the company said today in a statement. Dreman, who founded the Jersey City, New Jersey-based firm in 1977, will stay on as chairman and as a member of the investment committee.
“This succession plan has been several years in development,” Dreman said in the statement.
Hoover will take over on Oct. 31 as sole investment chief, with responsibility for $5 billion in assets. He joined the firm four years ago from NFJ Investment Group LP in Dallas, where he oversaw large and small-company stocks.
“David has created a solid value foundation and over time has been looking for someone to keep this firm on a value stance,” Hoover said today in an interview.
Dreman will continue to manage the $77.5 million Dreman High Opportunity Fund and the $7.26 million Dreman Market Over- Reaction Fund.
This means Dreman has de facto retired.
Not everyone knows who David Dreman is despite his spectacular investment record. However, this is a big loss to the value investing community.
I will post a bio about Dreman, and an interview I conducted with him in person earlier this year. I believe that I got the last interview with Dreman before his “retirement”. Dreman is one of five people who have had the greatest influence on my investing style. The others would be Benjamin Graham, John Neff, Bruce Greenwald, and Joel Greenblatt.
Below is a lengthy bio of Dreman along with the interview:
David Dreman’s bio from Dreman.com:
David Dreman is the founder, Chairman and Chief Investment Officer of Dreman Value Management, L.L.C., established in 1997. Mr. Dreman founded his first investment firm, Dreman Value Management, Inc., in 1977 and served as its President and Chairman until 1995, followed by a similar role at Dreman Value Advisors, Inc. from 1995 to 1997.
Mr. Dreman’s best selling book, Contrarian Investment Strategies – The Next Generation, was published in 1998 by Simon & Schuster. His previous widely acclaimed books includePsychology and the Stock Market (1977), The New Contrarian Investment Strategy: the Psychology of Stock Market Success (1980), and (1982). Articles discussing the success of Mr. Dreman’s investment methodologies have appeared in national publications such as Forbes,The Contrarian Investment Strategy Barron’s, Institutional Investor, The Wall Street Journal, The New York Times, Newsweek, Money andFortune.
A regular columnist for Forbes for over 29 years, he has presented before the National Bureau of Economic Research, the Society of Quantitative Analysts, the Harvard Medical School, the Cambridge Center for Behavioral Studies, the Institute of Behavioral Finance, the Association for Investment Management and Research (AIMR), the National Financial Analysts Seminar, as well as numerous other academic and professional groups. Mr. Dreman’s research findings have also been published in The Financial Analysts Journal, The Journal of Investing, and The Journal of Behavioral Finance.
Mr. Dreman is also co-editor of The Journal of Behavioral Finance, President of the Dreman Foundation, and a Director of the IFREE Foundation, whose founder Vernon Smith was awarded the Nobel Prize in Economics in 2002. Mr. Dreman was awarded a Doctor of Laws Degree from the University of Manitoba in 1999 and is a member of the Board of Trustees of the University of Manitoba.
More from GuruFocus: David Dreman is the founder and Chairman of Dreman Value Management, LLC and also serves as the firms Chief Investment Officer. His Large Cap Value Fund has returned average 17% annually, and Small Cap Value Fund average 16.5% annually since inception in 1991. A regular columnist for Forbes for 25 years, Mr. Dremans recent best-selling book, “Contrarian Investment Strategies – The Next Generation” was published in the spring of 1998.
I attended the Columbia Investment Management Conference several days ago. One of the main highlights of the Conference was a presentation by David Dreman on the financial crisis. After the presentation Mr. Dreman was kind enough to sit down and answer a few questions.
(Mr. Dreman mentioned that he heard of GuruFocus, and in fact he read and enjoyed my recent interview with John Dorfman (John Dofrman had previously worked for David Dreman for several years).
Below is our conversation:
Jacob Wolinsky: In light of the financial crisis where many value investors got burned, would you change your investment strategy at all? Specifically your approach that uses the lowest quintile of companies in terms of P/E, P/B, P/D, would you modify this approach at all? Would you focus more on balance sheets in the future, or do you view this as a once in a generation market crash and do you plan not to change your investment approach?
David Dreman: You always modify. In 2008 there was a crisis which you could not determine from the balance sheet. What the CDOs were priced at and what they could be sold at were totally different.
We changed our approaches in some ways. We should not look at companies and assume if it is losing money that it as a one time earnings loss. If you get to a period where earnings are indeterminate we should probably get out of those companies much more quickly.
We have another fund it’s a very small fund that I manage. It did not do well during the crisis, but last year it was the number one fund in value it was up over 60%. In the three years it is down about 12% so it is about 10% ahead of the market.
I tend to fine tine more on earnings. If there are loses on earnings you have to move quickly and get to the bottom of the losses if you want to hold onto the company. The rest we will keep as we have in the past.
Jacob Wolinsky: Everyone nowadays is hyping gold and China. Being the original contrarian what do you think about these asset classes?
David Dreman: There have been several studies done on gold. The best study done is by Jeremy Siegel in his book Stocks for the Long Run. Gold has done well over time much better than bonds. During inflation gold has done excellent. But if you take gold versus stocks have done much well especially since World War II. So my number one choice would be stocks. Everything people are cowering away from today I would prefer to invest in.
If we have an inflationary environment value stocks should do well over the next 4-5 years. And can I say this dirt word? Real estate. Real Estate has been hit so hard if you have a holding period of 5 years with 20-25% leverage it is a 4-1 play on the upside.
My view is once unemployment comes down and that will not happen overnight that will be a long many year process, I think we will have 10-12% inflation once unemployment comes down below 6% which could be another 4 years or so. There is no question there will be higher inflation in the future and housing with leverage will be an excellent investment.
Stocks did well in Germany when the mark went down to one billionth of its value. German Stocks went up during the 20s in terms of real purchasing terms. In Brazil the same thing. So stocks have been an inflation hedge.
If you had $100,000 in 1945 in long term bonds inflation adjusted would be worth 40,000, but 100,000 in stocks would be worth today about 3.5 million. So most investors who do not need the money today and have a 4-5 year time horizon should do very well in stocks.
The rest of the interview can be found at the following link-http://www.gurufocus.com/news.php?id=90051