Contrarian investing -- a strategy outlined in Dreman's most excellent Contrarian Investment Strategies -- has historically produced exceptionally good returns but it hasn't this time around: The Chicken Littles who said that Lehman Bros., Bear Stearns, Countrywide Financial and Washington Mutual were worthless or close to it turned out to be right.
In his email news-wrap, hedge fund manager and market commentator Whitney Tilson commented that "The same thing happened to Dreman in 1999 -- a great sign that value managers & stocks (esp. financial stocks) are going to rally!"
Dreman was fired in 1999 after his decision to avoid the internet stocks that were making go-go funds rich led to a period of underperformance. After being fired, Dreman proceeded to clobber the market over the next few years.
The difference between then and now is that in that market, Dreman passed over big speculative gains in pursuit of a more prudent and conservative strategy. This time, he lost investors' money by making aggressive bets on companies that no one really understood. Still, Tilson's analysis seems to make sense -- even if only because the federal government has opted to prop up insolvent institutions instead of letting them fail.
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Reader Comments (Page 1 of 1)
4-08-2009 @ 2:09PM
jd said...
Dreman and Tilson are both idiots. We are in a temporary bear market rally. There is about 50% more downside. The only companies left after the downturn will be utilities, consumer staples stocks and a few retailers like WMT. The financials and insurers will be dead and gone. Short like crazy until then.