| Interview with contrarian David Dreman |
| 10/18/15 | | Dreman |
"Dreman is also well known for sticking to a bottom-up, low PE stock-picking approach. In the interview below, he explains the extensive research that has proven the quality of the strategy, where he sees opportunities in the market and the 19th century book he says investors should read."
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| Debunking Beta |
| 09/08/10 | | Dreman |
"It's time to delete the CAPM from business school textbooks. It's done more harm than good for investors."
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| David Dreman exits unbowed |
| 04/10/09 | | Dreman |
"There are few celebrity mutual fund managers any more. Fund groups prefer to promote themselves rather than a manager who could leave to start a hedge fund. In an age when holding on to assets is the way for a fund family to profit, they may well prefer a fund that sticks close to its peers. The new fund managers plan to own more stocks, with less concentration in any one stock, and a broader definition of value investing. They are far less likely to stand out from the crowd."
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| Dickensian days |
| 01/16/09 | | Dreman |
"The time to buy value stocks is now. This is not to say that the market will immediately rebound. I don't know where the bottom is, and neither does anyone else. I can simply be confident that value stocks will do well over the long pull and that you're better off buying them when Wall Street is despondent than when it is ebullient. This Dickensian tale could have a happy ending."
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| It's time to buy |
| 11/20/08 | | Dreman |
"First, do not flee the market by selling your quality stocks. Yes, it's the worst bear market since 2000--02, and stocks are trading at valuations not seen in decades, but equities will come back. Second, because credit is subject to unpredictable crunches and it's impossible to guess when this bear will end, don't buy on margin. Third, don't hold shares of companies that will need cash to expand or refinance. There is a good chance they won't be able to borrow."
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| Bear market opportunities |
| 07/28/08 | | Dreman |
"Should you flee the market, given all this? It's a tough call, but I wouldn't. For one thing, the Administration and Congress can play a much larger role in alleviating the liquidity crisis than they have up to now. This being an election year, I have a strong feeling we'll see considerably more help from them in the next few months. Most likely the Fed will eventually move to fight inflation. Raising rates usually hurts the markets at first, but over time stocks have been one of the best inflation hedges you can find. In these circumstances, I wouldn't try to be too clever. You don't see market timers who own yachts. If you pack up now, chances are you'll miss a good part of the next bull market. A large part of the gains are always made in the first few months of one, when market-timing investors are still on the sidelines."
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| Postcrisis bank stocks |
| 05/29/08 | | Dreman |
"It is time to ask: How could the managers of so many banks and brokerage houses have thrown out the rule book on risk?"
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| Looking beyond the bailout |
| 04/17/08 | | Dreman |
"The government rescue of overleveraged financiers and underwater homeowners is still only beginning, and the signs that it will get bigger are manifold. The Federal Housing Administration has spent $21 billion since September staving off foreclosures. The House Financial Services Committee has proposed letting the FHA underwrite up to $300 billion in loans to borrowers. The last time the federal government stepped so directly into the mortgage business was at the bottom of the Great Depression. Congressmen from both parties are working on legislation to provide tax breaks and other help to much of the stressed homeowner population. The Administration has been reluctant to get involved in anything it would consider a bailout, but the rapidly darkening credit situation may leave it with no choice."
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| Seize the day |
| 12/20/07 | | Dreman |
"Thomas Jefferson once said that banks are more dangerous than standing armies. Certainly with Chairman Alan Greenspan at the helm of the Federal Reserve this was the case. Under his leadership the Fed was instrumental in creating two bubbles. The dot-com bubble of 1995--99 was followed by a grand loosening of credit that resulted in a second bubble, the housing mania of 2001--05. Still, when a bubble implodes there are always good opportunities for folks who have the courage to take risks. The credit crisis has been devastating to financial stocks. Banks, hedge funds and real estate investment trusts have incurred at least 800 publicly revealed writedowns of debt securities in the past year. Investors are running in fear from securities backed by, or in any way related to, mortgages or high-yield bonds. Both stocks and fixed-income securities have been knocked down to levels that are cheap even with worst-case assumptions about future defaults."
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| Dreman interview |
| 09/24/07 | | Dreman |
"I guess the key word is yet. I think we'll have some really major opportunities in the stock market. But I think there will be -- we'd like to see a little more unwinding. Actually, the stock market is fundamentally very strong."
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| Bad times ahead? |
| 04/12/07 | | Dreman |
"Given their enormous available capital, Freddie and Fannie could be big beneficiaries of the current panic, as other lenders pull back. The same is true for most of the nation's large commercial banks, where subprime loans are a mere fraction of their loan portfolios."
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| Dreman scoops up bank shares |
| 03/12/07 | | Dreman |
"Just when it looked like the four- year boom in financial companies' shares was over, some of the world's biggest investors are betting the best is yet to come. Dreman Value Management LLC, Pioneer Investments and Societe Generale SA say they're unconvinced surging defaults on so-called subprime home loans, or those made to the riskiest borrowers, will unravel the banking industry. They expect profits at the largest firms to keep growing, bolstered by fees from corporate and private-equity takeovers. The prospect of lower U.S. interest rates may also help support lending."
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| The sure thing almost nobody plays |
| 03/01/07 | | Dreman |
"Imagine you are entering a deluxe, well-appointed casino. Off the lavish entry foyer, there are two ample gambling wings, one hued in reds, the other in muted greens. The red wing looks enticing, but if I may insist, let's first enter the less crowded green rooms to watch the action. The atmosphere is unhurried, the blackjack tables are sparsely attended, and every player sits behind a mound of green and black chips. You think at first you've come to the wrong place. You see the ordinary table limits, the ordinary clothes, the ordinary games. But then how did these ordinary people get such piles of money? Then it comes to you. They're all winning. In fact, as you walk around the green wing, you hardly can find a losing player. You know, of course, that the average house take on table games is 5%, but as you count winning and losing hands, you realize these players are getting a better break. They seem to be gaining at a rate of 60% to 40%. You start fresh and take another count. The results are the same. A pit boss appears at your shoulder. "Excuse me," you say, "but can this be right? The odds favor the players?" "Yes, indeed. The odds in the green room usually run 60 to 40. It's been that way since we opened." "But...most of the players must go away winners." "They sure do. At those odds, we calculate that 9,999 out of 10,000 make money. At our high-stakes tables in the back, they do even better, with winners running about 20,000 to 1. It's a good thing we get so few players, or they'd break the house." Somewhat amazed, you thank him and shake your head. There's no time to lose, you decide, but you'll need more than the few dollars you have in your pocket. You hatch a plan to gather your life savings, come back to the casino, and win the bundle you've been dreaming of. On your way out, you glance into the red wing. The action level is much, much higher. The room is crowded and fairly roars with excitement. Can it be even better here, you wonder? Curious, you go in. Players bet multiple table positions, wave frantically for change, entreat the gods for luck. You see few green and black chips, fewer winning players. The piles of chips in front of them are dwindling with each hand. In fact, the odds are worse than normal. Again, you start to count. Although the players continue to excitedly toss in their chips, the odds appear to be maybe 60 to 40 in favor of the house. Once more, your curiosity whetted, you walk over to a pit boss and ask her the odds at these tables. She tells you what you suspected. They are 60 to 40 in favor of the casino. Warming up to the subject, she chuckles and says, "This room coins gold for the casino, the chances are 9,999 in 10,000 rounds that we wind up winners." You don't have to be a genius to see that this is obviously not the place you want to be. You go home and get your stash. You return to the casino with your fistful of money, excited, eager for action, all the time figuring how you'll do even better at the game. But then a strange thing happens. You walk into the red wing and start to play."
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| Short the exchanges |
| 12/22/06 | | Dreman |
"There's nothing better for piling up the cash to pay Wall Street bonuses than a hot stock offering. And since the market recovery began in late 2002, some of the hottest public offerings have been in securities exchanges themselves. Exchanges are the new Internet. That is, they are presumed to be capable of growing higher than the blue sky. That would make them good shorting candidates, if only you could get your hands on some borrowed shares."
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| The rally builds steam |
| 11/14/06 | | Dreman |
"First, it's impossible to get a good grip on how far the housing slump will go. The optimists state the decline in new home sales is almost over and home construction will bounce back vigorously both next year and in 2008. That's a hard story to buy because of the strong headwinds that await this important industry. Even if new construction is cut back fairly sharply, there is still a large inventory of new units to work off. With diving house sales, stocks of home builders look cheap today. However, proceed with caution. My fellow columnist Laszlo Birinyi finds several a buy, despite weakening earnings. I'd wait a bit. Many builders have bought call options on new land. They would argue that they are thus protected if land prices drop because they do not own the land. That's true only up to a point. Call options on land are not free. A 12- to 18-month option to buy land can cost as much as 15% of the property's value. Let that option lapse and you eventually have a hit to earnings for the premium paid."
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| Under-the-radar small-cap fund |
| 10/19/06 | | Dreman |
"Over the past two years, the fund has benefited from a sizable stake in energy stocks (now a bit more than 10% of the portfolio). A large position in financials -- specifically shares of small banks -- has also given the fund a boost. The portfolio, which contains 90 holdings, includes such companies as natural gas transporter Southern Union (SUG) and Foster Wheeler (FWLT), an engineering and construction firm."
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| Surviving inflation |
| 07/14/06 | | Dreman |
"A classic example is the 1977--81 period, when the U.S. flirted with hyperinflation. Worriers evoked the Weimar Republic of the 1920s. During the unhappy 1977--81 span the Consumer Price Index rose 12.6% annually. Equities at the outset retreated 7.2% in 1977, but over the next four years stocks returned 12.3% annually, versus 10.8% for the CPI. Even though inflation remained sky-high, stockholders more than kept up with the cost of living."
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| The long view |
| 06/20/06 | | Dreman |
"There's a brass telescope set up in David Dreman's spacious Jersey City office, and it's trained on Manhattan's southernmost tip, just across the Hudson River. That's exactly how the 70-year-old veteran investor looks at Wall Street - with a long view, a high level of scrutiny and from a very different perspective than most money managers."
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| Unpleasant surprises |
| 05/28/06 | | Dreman |
"How smart are analysts at forecasting earnings? I have a long-running debate with the analyst community on this point. The analysts (and the people who circulate their numbers) think they're pretty good. I think they all too often miss by a wide margin, especially on high-multiple growth stocks, where a disappointment can send a stock reeling."
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| Dreman and Davis interview |
| 04/17/06 | | Dreman |
"This week on WealthTrack rare in depth sessions with two of the most successful fund managers in the business ... David Dreman and Christopher Davis explain how they invest for the long term with such sterling results ... learn about the value of value investing."
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| Deficient Market Theory |
| 02/09/06 | | Dreman |
"How nice life would be if all bad ideas went out of style, like the divine right of kings, medicinal bloodletting and leisure suits. Unfortunately, a muddled notion called the efficient market hypothesis refuses to go away. This absurd thesis holds that nobody can beat the market, stocks always are correctly priced according to what's publicly known about them and any mispricings are chimeras."
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| Value keeps steaming on |
| 01/13/06 | | Dreman |
"Last year was my 25th as a Forbes Columnist, but the market didn't give me much of an anniversary gift. The struggle between bulls and bears in 2005 was reminiscent of 2004, with the S&P 500 even by October. Both times the market went on to rally later in the fall and finished the year ahead. At year-end 2005 the S&P clocked a 3% appreciation, in 2004 9%. With dividends added, last year's S&P total return was 4.9%."
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| Stick to your guns, Fannie |
| 11/11/05 | | Dreman |
"If you own either of these stocks, hang in there. If you don't, buy them. They're cheaper. Fannie Mae trades at an estimated 6 times trailing earnings, giving you a margin of safety even if earnings are restated downward. Freddie is at 15 times earnings."
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| Coffin spiral |
| 09/29/05 | | Dreman |
"Military pilots call it a "coffin spiral"--when their plane is so out of control that they can't recover. That's the situation today for long-term bonds, those with maturities over ten years. The reason is that a killing turbulence of inflation is on the way, pushing bond yields up and prices down. The first sign is energy's rising price--filling up the tank is twice as expensive as two years ago--and that affects all corners of the economy."
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| The problem with indexes |
| 08/22/05 | | Dreman |
"Benchmarks used to gauge your portfolio's performance are severely flawed. Know their drawbacks before judging how you did."
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| Value of stock buybacks up in air |
| 05/06/05 | | Dreman |
"David Dreman, a veteran investor who heads Dreman Value Management in Jersey City, N.J., said buybacks are "almost a white flag" from corporate officers, an admission they cannot find anything better to do with shareholders' capital. Why invest in a business like that? he wonders. What's the long-term growth story?"
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| Analysts keep misfiring with 'sell' ratings |
| 04/11/05 | | Dreman |
"Of course, not all stocks with heavy sell ratings are good stocks to own, and not all stocks with many buys are bad stocks. Enron, for example, was widely hated by analysts shortly before its demise, and they were right. "You do have to do a fair amount of research" if you invest this way, to be sure you aren't getting an Enron or a WorldCom, says David Dreman, chairman of Dreman Value Management in Jersey City, N.J. He likes to buy stocks such as retailers, which can rise and fall sharply based on the economy, and tobacco makers, whose fortunes can depend on litigation. He finds analysts tend to abandon them at the bottom and begin recommending them at the top."
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| Tobacco industry ends up good bet |
| 02/27/05 | | Dreman |
"David Dreman scored big when cigarette makers won a court ruling blocking the U.S. government's claim to $280 billion of past profits. His $6.1 billion Scudder-Dreman High Return Equity Fund has 10 percent of its assets invested in Altria Group, whose Philip Morris USA unit is the world's largest maker of cigarettes."
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| Three out-of-favor stocks to consider |
| 12/17/04 | | Dreman |
"I asked Dreman to recommend just one stock from his fund portfolio to hold for the next five to 10 years and tell us why. I got more than I asked for -- a lot more!"
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| 1973 Revisited? |
| 06/24/04 | | Dreman |
"Now a number of prominent strategists say the sharp spike in oil prices makes today look eerily like 1973. Are they right?"
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| Why investors get it wrong |
| 04/26/04 | | Dreman |
"Investors, even professionals, fall prey to important logical fallacies and psychological failings . . . the bottom line is that these powerful forces lead most people to make the same mistakes time and again"
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| Define value investor: Dreman gives it a shot |
| 04/25/04 | | Dreman |
"If you buy value stocks, on the whole, they have pretty long histories. If you buy Berkshire Hathaway, you know it's been around for over 30 years, so you know the accounting is not going to be funny. If I buy a bank stock, a company with a long record, there's not going to be too much funny with the accounting. Another good indicator is that it pays a good dividend. They've obviously got a good cash flow. I think the real problem is with companies that are less than a decade old, that had a lot of fancy accounting, like WorldCom, Tyco, Global Crossing. All of these were new market companies, and the accounting was very shoddy to start with. Nobody knew what the real assets were."
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| Is there virtue in vice? |
| 04/02/04 | | Dreman |
"For instance, David Dreman, the veteran value investor, says that "tobacco stocks have been a core holding of ours for several years." He added, in a letter to shareholders of his Heritage Value Equity fund (HSTVX), "We believe tobacco litigation will be significantly lower in the future, resulting in these stocks gaining much higher P/E ratios. . . . Our sum-of-the-parts valuation of Altria implies an expected return of 50 percent or more from current prices.""
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| David Dreman, Maharajah of the multiples |
| 10/07/03 | | Dreman |
"From 1970 through 1996 the market returned 14.9 percent. But high relative dividend stocks provided a return of 17.0 percent; low relative price to book value stocks returned 17.8 percent; low relative price/earnings stocks returned 17.7 percent; and low relative price to cash flow stocks returned 18.4 percent. (In each case the stocks were ranked relative to their specific industry.)"
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| Hot stocks |
| 09/07/03 | | Dreman |
"The economy is picking up, but investors' anticipation of a rapid improvement is a little too aggressive, said David Dreman, fund manager for Scutter Dreman High Return Equity Fund. Companies are boosting their earnings, but they aren't seeing fast enough improvement, Dreman said. He cited the strong rise in the Nasdaq, which he dubbed "bubble junior.""
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| Quite the Contrarians |
| 06/27/03 | | Dreman |
"You can see why it's cool to be contrarian: Fund manager David Dreman tracked market opinions of experts going back to 1929, and found that the consensus was wrong 77% of the time."
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