Contrarian Investment Strategies: Book Review appeared first on The Stock Market Blueprint Blog.
Booms and busts are becoming more frequent in today’s investing environment. In Contrarian Investment Strategies, David Dreman uses modern psychological research to profit from the stock market’s inevitable swings.
Dreman is the chairman and managing director of Dreman Value Management, LLC. He explains that human behavior is the root cause of extreme volatility. But, investors who overcome their basic instincts can profit while managing their risks.
The book is divided into five parts:
- Part 1: Focuses on how psychology directly affects investment results.
- Part 2: Lays out an argument against the Efficient Market Hypothesis (EMH).
- Part 3: Shows why earnings forecasts can’t be trusted.
- Part 4: Provides specific investment strategies for contrarian investors to follow.
- Part 5: Recaps why it is so important to be contrarian investor in today’s landscape.
An Alternative Approach
Dreman cites evidence backed by decades of research to make his case for a contrarian approach to stock market investing. He also holds nothing back when refuting (EMH). This can be seen when he flat out mocks the leading academic practitioners who cling to the hypothesis as their gospel.
The financial industry in general receives the same treatment. Dreman clearly documents the dismal track record of leading analysts and goes as far as accusing some of corruption.
An ongoing theme throughout the book is Dreman’s alternative definition of risk. Rather than believing that volatility is risk, he claims over leverage and lack of liquidity are the true investment risks. These two circumstances are what cause market prices to soar and later come crashing down.
Contrarian Investment Strategies
According to Dreman, investors who own a basket of stocks with low price ratios (P/E, P/B, P/CF) and high dividend yields can avoid getting caught up in the manic and panic. A patient investor who follows these guidelines will protect his principle and receive exceptional returns over the long term.
At just under 420 pages, this book could be shorter, but for any investor interested in obtaining improved investment results, Contrarian Investment Strategies is worth reading.
Mitchell Mauer is the Founder of TheStockMarketBlueprint.com. The Stock Market Blueprint is a site that finds value stocks for investors building long-term wealth. The site’s investment philosophy is anchored in principles established by Benjamin Graham and his most reputable followers over the last 100 years.