Legendary contrarian investor David Dreman was fired as manger of the $2.2 billion DWS Dreman High Return Equity Fund yesterday after the fund lost 47% of its value over the past year. Dreman bet heavily on financial stocks, based on a belief that the widespread pessimism on the industry was overdone.

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.

"Among contrarians, one advisors stands out among all others: David Dreman," notes John Reese, editor of the Validea newsletter.

His advisory service selects stocks based on the strategies of time-tested investors, he reviews Dreman's approach and offers one stock that matches the contrarian's investment profile -- specialty metals firm, Allegheny Technologies (NYSE: ATI).

"Dreman, perhaps more than any other guru I follow, is a student of investor psychology. And at the core of his research is the belief that investors tend to overvalue the 'best' stocks -- those 'hot' stocks everyone seems to be buying -- and undervalue the 'worst' stocks -- those that people are avoiding like the plague.

"In addition, he also believed that the market was driven largely by how investors reacted to 'surprises', frequent events that include earnings reports that exceed or fall short of expectations, government actions, or news about new products.

"And, he believed that analysts were more often than not wrong about their earnings forecasts, which leads to a lot of these surprises. By taking a contrarian approach -- i.e. targeting out-of-favor stocks and avoiding in-favor stocks -- Dreman found you could make a killing.

"To find out-of-favor potential turnarounds, he compared a stock's price to four fundamentals: earnings, cash flow, book value, and dividend yield. Because Dreman took advantage of the overreactions of others, he found that one of the best times to invest was during a crisis.

"Allegheny Technologies is a diversified specialty metals producer; its metals are selected for use in environments that demand metals having hardness, toughness, strength, resistance to heat, corrosion or abrasion, or a combination of these characteristics.

"We are moving headlong into oil," notes John Reese, who analyzes stocks based on the criteria used by "legendary" investors such as Buffett, Graham and Lynch.

In his Validea newsletter, he says, "My fundamental models indicate that the oil industry is where the best values in the market are." Here's a look at W&T Offshore (NYSE: WTI), which is based on the criteria used by contrarian David Dreman.

"The economy and stock market have gone through a legitimate crisis because of the credit woes, and it takes time for something like that to work itself out.

"But the important thing to remember is that we've been through financial crises before -- even bad-debt financial crises like this one -- and the market has always stabilized and then pushed higher.

"And history has shown that those who can stick with the stock market through down times like these will be rewarded.

"David Dreman -- one of the gurus I base my strategies on -- notes in his recent Forbes column, 'If you pack up now, chances are you'll miss a good part of the next bull market. A large part of the gains are always made in the first few months of one, when market-timing investors are still on the sidelines.'

"Right now, we have a rare opportunity to get paid a monthly double-digit dividend and buy the skills of a legendary investment manager for only 85 cents on the dollar," says Dr. Steve Sjuggerud.

Here, in Daily Wealth, the advisor takes a look at David Dreman -- -- noted contrarian advisor -- and the opportunity currently offered in his closed-end fund, Dreman Value Income Edge Fund (NYSE: DHG).

"David Dreman made one of the greatest calls in stock market history. In 1980, he told investors to buy stocks. He didn't just tell a few clients or friends to buy stocks.

"He literally wrote the book on buying stocks in 1980 -- Contrarian Investment Strategies in which he argued, 'The stock market appears cheap by nearly every historical standard.'

"At the time, saying 'buy stocks' was bold stuff. Stocks hadn't made money in 17 years. But Dreman was absolutely right. After 17 years of losses, the stock market started the longest bull run in recorded history, which stretched from 1982 until 2000.

"Fast forward to 2008. Dreman is guarded, but optimistic again. In the May issue of Forbes he says: 'Frightening as the markets look today, there will come a time when the liquidity crisis ends and today's prices for bank stocks look, in retrospect, like bargains.'

My friend and colleague Georges Yared has been unabashedly bullish on shares of Apple Inc. (NASDAQ: AAPL), and his buy call has looked nothing short of brilliant for a long time:

Sometimes there is an article in a newspaper that's so great that it's worth doing a post on just so that more people will see it, and no additional commentary is really necessary. Whitney Tilson's tips for value investors in these weekend's Financial Times is such a piece.

For the uninitiated, Whitney Tilson is one of the great value investing minds of our time. He's also a heck of a good guy: He's one of the founders of Teach For America, and I'm an eager reader of anything that he has to say.

For more information about how to implement the investment strategies discussed in his latest column, I recommend the following books:

You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits. If there's an award for the most informative book with a clunky, annoying title, I nominate this Joel Greenblatt masterpiece. It's focused on special situations such as spin-offs and bankruptcy investing, which are both featured in Tilson's list of tips.

Contrarian Investment Strategies: The Next Generation. Whether you like it or not, almost all value investing seems to have a contrarian angle: You're buying stocks that you think the market is pricing inaccurately. David Dreman makes a compelling case for contrarian investing, and shows how you might be able to beat the market.

The latest issue of Barron's featured the results of the weekly paper's stock-picking contest for college students. Derek Zoch, a student at Wharton, had a strategy that smacks of classic contrarianism in the tradition of David Dreman. He looked for stocks making the largest moves, up or down, on each day and then bet against them. This strategy (with, of course, a huge amount of luck) led him to a 34.94% gain in six months.

Does this strategy make sense? It might. Jim Cramer has said that the market never rewards the best news and enough, and never punishes the worst news badly enough. But contrarians like David Dreman would argue that it's just the opposite: the stocks that are disappointing investors the most are often the best bargains. And, as Zoch bet, stocks making great gains are likely to be overrated.

Here is a hardcore contrarian strategy that you could try: each day for 2 weeks, buy the biggest % loser on the NYSE, and short the biggest gainer. Hold each stock for six months, and then close all the positions and see if you beat the market. Interestingly, one might extrapolate from Cramer's remarks that his approach could be just the opposite.

Whenever I see a list of contrarian stock picks, I'm reminded of the Yogi Berra witticism about a popular restaurant: "Nobody goes there anymore because it's too crowded."

A list of stocks to buy because no one is interested in buying them seems paradoxical, but the methods that the Wall Street Journal used to compile its list of contrarian stocks [subscription required] are interesting: Stocks that have lagged the market for six months but have made sizable gains in the past week, have manageable debt levels, solid profits, negative analyst ratings, and PEG ratios below 1.5.

That's a pretty good screen for finding beaten down stocks, and I'm going to try to find a site that will allow me to input all of that into a stock screener. Anyone with any suggestions, please leave a comment.

And to learn more about contrarian investing, I recommend David Dreman's Contrarian Investment Strategies.

I've just returned from the World Money Show, where some 10,000+ investors gathered to learn about global investing. I had a chance to meet with many of the advisors who were featured at the show, and will be highlighting some of their favorite investment ideas. To view all of the stocks featured in this special global report, click here.

Petrobras Petroleo-Brasileiro (NYSE:PBR) is among the latest additions to the buy list of Validea, a newsletter that selects its stocks by following the investment guidelines of time-tested strategies employed by investment "legends". In this case, the stock pick is based on the ideas of David Dreman, James P. O'Shaughnessy, and Peter Lynch.

Editor John Reese explains, "Petrobras is an integrated energy company controlled by Brazil's government. It is dominant in a number of markets. For example, it controls 98% of the country's refining capacity. Three guru strategies favor Petroleo Brasileiro.

"One of these is the strategy we base on the writings of David Dreman. The Dreman strategy views the company as a contrarian investment because both its P/E and price-to-cash flow ratios are in the bottom 20% of the market.

"However, the company is doing reasonably well financially, notes the strategy. Earnings are increasing, the company's current ratio of 1.51 exceeds its industry's average, return on equity is a very strong 35.05 percent and pretax profit margins are also very strong, at 32.59%. In addition, the stock's yield is 3.35%.

According to a piece in today's New York Times, economists expect good but not great things for 2007. Merrill Lynch's Chief Investment Strategist Richard Bernstein projects a 12% rise in the S&P 500. Abby Cohen sees the S&P going up modestly, and UBS's David Bianco expects multiple expansion. Some economists worry about the Fed and others are concerned that investors are too bullish about GDP growth. But all in all, they are expecting it to be a good year.

The problem, according to investors like David Dreman, is that positive sentiment is often a contrarian indicator. In his book Contrarian Investment Strategies, he provides compelling data that show that even the best analysts and economists are often wrong -- and by a problematic amount.

So it may be wise to exercise caution in the face of bullishness. As Warren Buffet often says "The secret is to be fearful when others are greedy and greedy when others are fearful." I hope the analysts are right, but I wouldn't be making investment decisions based on their predictions.

Today's "Abreast of the Market" column in the Wall Street Journal explores the difficulties that many contrarian investors are facing this year: with a bull market and optimistic investors, there simply aren't that many hated stocks to be scooped up at bargain prices. Only four stocks in the Dow Jones Industrial Average are down this year, compared with 16 last year. The two most poorly performing industries of the year, health care and technology, are up 5.4% and 8.6% respectively. So how do contrarians find unloved stocks in a market where everything is up? Among the strategies highlighted in the article are:

• Buying the 50 most poorly performing stocks in the last year from the S&P 500. 2002's weakest were up an astounding 81% in 2003, but have performed the same or worse than the broader index every year since. One professor suggests buying the most poorly performing stocks of the past 3 to 5 years, because those have been "in the doghouse" for a long time, and are truly out of favor. He also suggests looking for signs of a rebound in the share price before buying.
• Buying stocks that have been removed from the S&P 500, and avoiding stocks that have been added. Being removed from an index is a pretty clear sign of negative investor sentiment, and companies that were removed from the S&P 500 this year are up, on average, 28%. Stocks that were added are up just 1%.
• The Dogs of the Dow, which consists of buying the five or ten highest yielding stocks in the Dow Jones Industrial Average, was popular for a long time. However Professor Mark Hirschey has studied it and found it to be no better than buying the entire index, and the system has fallen out of favor lately. Perhaps now that it's out of favor, the Dogs of the Dow Strategy is a contrarian play itself?

Investors interested in exploring contrarian investment strategies should pick up a copy of David Dreman's classic book Contrarian Investment Strategies.

Who wouldn't want to follow in the footsteps of this century's great investors? SmartMoney tries to give its reader that opportunity in its August cover story profiling the likes (and the stock picks) of Warren Buffett, Bill Miller, Chris Davis and others.

It's a fascinating read and one that left me chomping at the bit to go invest my spare cash. Sears Holdings (SHLD), Merck (MRK), and News Corp (NWS) were the names that caught my eye. If I had any spare cash I would probably be doing some buying rather than writing this blog post. But since I don't, I'll instead enumerate the reasons why it may not make sense to follow the stock picks of the pros:

• They bought back then, but would they buy now? You just don't know. Buffett bought ConocoPhillips, General Electric (GE) and United Parcel Service (UPS) in the past year. But has he held onto them? Did he buy for reasons that have nothing to do with his view on their long-term potential (that's always a possibility with Wall Street pros)? My guess is the answer is "no" to both those questions, but we just can't be sure what Buffett was thinking when he bought and if he'd do the same thing today.
• What if they are due for a cool streak? Bill Miller has been an investing phenomenon, beating the S&P year after year. Some academics would argue that it's pure luck. The article points out that his bets on United Health Group (UNH) and Aetna (AET)aren't looking so good and a couple of his August cover picks -- Yahoo and Dell -- have stumbled badly lately. But Sears Holdings (SHLD) sounds like a decent idea to me.
• Are they playing it safe? Christopher Davis picks Wal-Mart and Microsoft. Those sound like fine choices for the core of a portfolio, but I doubt they are really his best ideas. News Corp (NWS), his third idea sounds like the smartest to me. And the stock is doing terrific this year.

The article is well worth reading and if you are looking for some good ideas, this is a great place to start. But just as with any investing article, it should just be the starting point for further research.