5 Dreman-Inspired Contrarian Gems

Dec. 03, 2010 5:38 AM ETBBAR, EXC, EWBC, T, TEF11 Comments
John P. Reese profile picture
John P. Reese
2.07K Followers

While all the gurus I follow have built their fame and fortunes using different investment approaches, there is at least one striking similarity that most - if not all - of them share: They are contrarians. When the rest of Wall Street is zigging, they are zagging; when Wall Street zags, they zig. By having the strength of conviction to march to their own drummers and not follow the crowd, they have been able to key in on the types of strong, undervalued stocks that have made them - and their clients or shareholders - very happy.

But while most of the gurus upon whom my "Guru Strategies" are based are contrarians, one stands out among all the others: David Dreman. Throughout his long career, Dreman has sifted through the market's dregs in order to find hidden gems, and he has been very, very good at it. His Kemper-Dreman High Return Fund was one of the best-performing mutual funds ever, ranking number one out of 255 funds in its peer groups from 1988 to 1998, according to Lipper Analytical Services. And when Dreman published Contrarian Investment Strategies: The Next Generation (the book on which I base my Dreman strategy) in 1998, the fund had been ranked number one in more time periods than any of the 3,175 funds in Lipper's database.

Currently, the investment model I base on Dreman's approach is available through the Guru Analysis & Guru Stock Screener App in Seeking Alpha's Investing App Store. It's an approach that has fared quite well for me: Since its July 2003 inception, a 10-stock portfolio picked using the model has gained 78.5%, or 8.2% annualized. During the same period, the S&P 500 has returned a total of 18.%, or just 2.3% per year. This year, the Dreman-based portfolio is nearly tripling the index's gains (15.9% vs. 5.9%).

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John P. Reese profile picture
2.07K Followers
John P. Reese is considered an expert in the systematic investing strategies of legendary investors, including Peter Lynch, Ben Graham, Warren Buffett and others. He has been active in the development of fundamentally-based quantitative models since the mid-90s. His research on Seeking Alpha will include stock ideas, strategy and value investing pieces, behavioral finance concepts, systematic and modeling methods as well as other long term investing concepts. John is founder and CEO of Validea.com and also co-founder of Validea Capital Management. Validea Capital runs an actively managed ETF that utilizes the fundamental stock selection models of investing legends as well as a set of robo advisor allocations through Validea Legends and Validea Legends Income. John holds two U.S. patents in the area of automated stock analysis and is considered an expert in the field of quantitative stock selection using the strategies of investing legends. John is a columnist for TheStreet.com, Forbes.com and Canada's Globe & Mail and is co-author of “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies". He holds a master's of business administration from Harvard Business School and a degree in computer science from MIT.A more complete biography can be found here: http://en.wikipedia.org/wiki/John_P._Reese

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