Best Investing Insights from Contrarian Investor David Dreman
Investopaper
David Dreman, a well known contrarian investor and the founder and chairman of Dreman Value Management, has written several books based on the psychology and the contrarian investing strategy. His investing style includes buying out of favor companies trading at lower multiples.
Here are some of the best insights (quotes) by David Dreman regarding his investing style.
Best Investing Insights (Quotes) From David Dreman
One of the big problems with growth investing is that we can’t estimate earnings very well. I really want to buy growth at value prices. I always look at trailing earnings when I judge stocks.
Psychology is probably the most important factor in the market – and one that is least understood.
The success of contrarian strategies requires you at times to go against gut reactions, the prevailing beliefs in the marketplace, and the experts you respect.
I paraphrase Lord Rothschild: ‘The time to buy is when there’s blood on the streets.’
We invest in undervalued companies that exhibit strong fundamentals, above-market dividend yields and historic earnings growth, which our analysis indicates will persist. Our strategy is to own strong, fundamentally sound companies and to avoid speculative stocks or potential bankruptcies.
Investors repeatedly jump ship on a good strategy just because it hasn’t worked so well lately, and, almost invariably, abandon it at precisely the wrong time.
Napoleon was the greatest probability player of modern warfare. Most often outnumbered, he won by moving fast and concentrating his forces on the battlefield on the enemy’s weak points.
Experience teaches us that when “everyone” comes to the same conclusion, that conclusion is just about always wrong.
Demanding immediate success invariably leads to playing the fads or fashions currently performing well rather than investing on a solid basis. A course of investment, once charted, should be given time to work out. Patience is a crucial but rare investment commodity.
Avoid unnecessary trading. The costs can significantly lower your returns over time. Low price-to-value strategies provide well above market returns for years, and are an excellent means of eliminating excessive transaction costs.
Favored stocks under perform the market, while out-of-favor companies outperform the market, but the reappraisal often happens slowly, even glacially.
People like exciting stories. They don’t like boring companies. That is the normal cause of investor overreaction.
History constantly reminds us that in an uncertain world there is no visibility of prospects. One cannot predict the future earnings with accuracy.
If you have good stocks and you really know them, you’ll make money if you’re patient over three years or more.
I buy stocks when they are battered and I am strict with my discipline. I always buy stocks with low price-earnings ratios, low price-to-book value ratios and higher-than-average yield. Academic studies have shown that a strategy of buying out-of-favor stocks with low P/E, price-to-book and price-to-cash flow ratios outperforms the market pretty consistently over long periods of time.
