David Dreman - Contrarian Investor

Validea used the investment strategy outlined in the book Contrarian Investment Strategies written by David Dreman to create our Contrarian Investor portfolio.

Dreman believed that investors are prone to overreaction, and, under certain well-defined circumstances, overreact predictably and systematically. They typically overvalue the popular stocks considered the "best", and undervalue those considered the "worst", often going to extremes in these over- and under-valuations. Because of that, he focused on stocks that most investors were shunning -- those with low price/earnings, price/book, price/dividend, and/or price/cash flow ratios. Then, to separate stocks that had been beaten down because of investor overreaction from those that were outright dogs, he applied a number of other fundamental tests, looking, for example, for a high current ratio, high return on equity, high pre-tax profit margins, and a low debt/equity ratio.