"The New Contrarian Investment Strategy

Investment Strategy" is that traditional methods of security

analysis are inaccurate. Dreman challenges the precepts of mainstream security analysts, perennially concerned with facts and charts that forecast upward moving stock prices. His recommendations are contrarian because they oppose the prevailing and embedded investment culture. In fact, the contrarian investor is one who can shun the lure of well-performing securities in favor of buying stocks with low price/earnings ratios. A contrarian avoids the stocks the experts or the crowd are pursuing, and tracks the ones that they are avoiding (p.138).

The book begins with a critique of technical analysts. They contend that stocks and the general market move in discernible patterns until a clear signal is received indicating a change in course. A technical analyst forecasts changes in trends by plotting price movements and then identifying patterns which reveal to them reversals in the direction of stock prices. (p.29). Technical analysts look at stock price patterns and predict price movements.

The technician's information has multiplied with the increased use of computers. But not his ability to predict. Price patterns are complex, symmetrical formations are rare, and even leading chartists disagree about how to interpret them (p.32). While one can observe price patterns in retrospect, a number of studies indicate that price changes are actually random and

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ds it needs internally and relies less on outside borrowing or on the sale of common stock. Despite these no-nonsense tenets, in practice, the fundamental analyst's paradigm has shown less than lackluster results. And, Dreman argues, so have growth stocks. One problem with growth investing is the difficulty of accurately extrapolating a company's current earnings into the future. There is always the question of what multiple should be used to evaluate earnings. Meanwhile, high price/earnings can shift drastically as market moods change. Indeed, a Kidder, Peabody study of the top 50 stocks on the New York Stock Exchange revealed that from 1973 to 1980 the price/earnings ratios of the same companies dropped 50 percent (p.51). Another study by Friend, Blume, and Crockett of the Wharton School on mutual funds shows that there is no correlation between a fund's performance record in one period compared to its performance in another period. The study measured 136 funds from 1960 to 1968 and found that the funds showed an average return of 10.7 percent annually. The study then covered the fund's yield for the year ending July 1969. For this period, the average fund had decreased by 3.3 percent (p.55). To explain their fi
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Some common words found in the essay are:
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Approximate Word count = 1771
Approximate Pages = 7 (250 words per page)