Contrarian Investment Strategies: The Psychological Edge

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Simon and Schuster, Jan 10, 2012 - Business & Economics - 481 pages
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David Dreman, chairman and managing director of Dreman Value Management, LLC, is one of the most successful and influential investment managers in history, and his name is synonymous with contrarian investing. In this major revision of his investment classic, which Warren Buffett called “that rarity—an extremely readable and useful book that will be of great value both to the layman and the professional,” Dreman introduces vitally important new findings in psychology that explain why the stock market is inescapably given to bubbles, panics, and periods of high volatility. He also shows how we can use these findings to reliably profit from market errors, crash-proof our portfolios, and earn market-beating long-term returns.The need for these keen new insights and his powerful contrarian strategies has never been more urgent. The market crash of 2007–2008 left no doubt that there are glaring flaws in the theory underlying all of the other prevailing investment strategies—the efficient market hypothesis—as well as in the long-accepted theory of risk. These twin theories, and all of the popular investing strategies that are based on them, fail to account for major, systematic errors in human judgment that the powerful new psychology research explains, such as emotional overreactions and a host of mental shortcuts in decision-making that lead to wild over- and undervaluations of securities as well as fundamentally flawed assessments of risk. Dreman's contrarian strategies not only account for these dangerous psychological effects but allow investors to take advantage of them. Dreman presents a breakthrough new theory of risk and introduces vital findings about the hidden dangers of high-speed trading and its role in volatility; he also delves into the pernicious risk of flash crashes as well as how to prepare for inflation.Updating all his signature charts of market movements and stock valuations that prove the remarkable power of his contrarian strategies, he shows how the strategies would have optimized returns during the “lost decade” that culminated in the 2007–2008 crash and would have positioned investors for market-beating returns in the recovery. Enhancing his core methods for choosing stocks with a number of new techniques developed over the last decade, he shows why the “best” stocks are consistently overvalued while the so-called worst, contrarian stocks are undervalued, and he lays out his proven and simple rules for avoiding the pitfalls and spotting the bargains.Based on breakthrough research and showing for the first time how the new psychological findings can be directly incorporated into investing strategy, this thoroughly revised edition of one of the most influential books on investment is an essential addition to every investor's arsenal.
 

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Excellent! It is amazing the amount of emotions that we fall prey to when making investment decisions. I was not able to read the book very fast because its use of psychology is very deep. I found myself in awe many times of how many mistakes I have made. I'm sure my actions in the future will be different just based on what I have learned from this author. This is a must read for anyone who is a DIY investor.  

Contents

Introduction
1
Market Overreaction
8
What StateoftheArt Psychology Shows
11
The New Dark Ages
85
Flawed Forecasting
165
A Powerful Contrarian Approach to Profits
247
Profiting from Investors Overreactions
268
Contrarian Strategies Within Industries
310
Investing in a New Alien World
323
Toward a Better Theory of Risk
350
The Challenges and Opportunities Ahead
379
Acknowledgments
419
General References
443
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About the author (2012)

David Dreman is regarded as the "dean" of contrarians by many on Wall Street and in the national media. Dreman is the Chairman and Chief Investment Officer of Dreman Value Management, L.L.C., of Red Bank, New Jersey, a firm that pioneered contrarian strategies on the Street and manages over 4 billion dollars of individual and institutional funds. The author of the critically acclaimed "Psychology and the Stock Market and Contrarian Investment Strategy, " Dreman is also a senior investment columnist at "Forbes" magazine. Articles dealing with the success of his methods have appeared in "The New York Times, The Wall Street Journal, Fortune, Barron's, Business Week, Newsweek, " and numerous other national publications. He resides with his wife and two children in Aspen, Colorado, and on the family yacht, "The Contrarian."

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