More Top Picks Hp 14
player ready...It’s a good idea to pay attention now and again to someone who’s been around a few years in this age of thirtysomething investment bankers, research analysts and, yes, financial columnists.
And for people interested in tech-stock investing, it pays to seek a gray-hair who’s decidedly down on technology stocks.
That someone is David N. Dreman, chairman and chief investment officer of Dreman Value Management LLC in Red Bank, N.J., portfolio manager of the Kemper-Dreman High Return Fund in Chicago and full-time resident of Aspen, Colo.
Dreman is a “value” investor, meaning he likes to buy undervalued, out-of-favor stocks. That distinguishes him from the typical technology stock picker, who focuses instead on “growth,” or the likelihood a fast-moving company’s stock–no matter how richly valued now–will continue to grow at above-market rates.
So it’s not a surprise that as a founding member of the modern against-the-grain crowd–his yacht is named The Contrarian–Dreman, 62, typically is no fan of tech stocks. At least, not when everyone else is.
Dreman, who is making the rounds to plug his new book, “Contrarian Investment Strategies: The Next Generation; Beat the Market by Going Against the Crowd,” says, “I like to buy tech when it’s cheap, but I think we’re in a bubble now.”
It’s a bigger bubble, Dreman reckons, than the previous three he’s witnessed, two in the ’60s and one in the ’80s. “Every one of those blew up,” he says. “It’s not that these companies are bad, it’s just that so few survive.”
Dreman isn’t against tech at all. But tech generally isn’t cheap now, so Dreman keeps his clients out. He says until recently the Kemper-Dreman fund had 15 percent of its assets in tech stocks, but none now.
Dreman maps out his investment strategies with persuasive rules and homey justifications. An example: “Rule 29: Political and financial crises lead investors to sell stocks. This is precisely the wrong reaction. Buy during a panic, don’t sell.”
The contrarian backs up his backward psychology with facts. A year after 11 major crises since World War II, the Dow Jones industrial average had grown an average of 26 percent from its troughs. It jumped almost 38 percent two years after the trough. Simply put, biting down hard during a crisis would have yielded the big-stock investor above-average returns.
Dreman’s edge–every market guru has one–is behavioral psychology. He studies the expected performance of stocks and the expected behavior of investors. And he’s keen on studying how other gurus–the much disparaged analysts–“help investors make the wrong decisions, especially on technology companies.
“Tech is a great area for us because all the analysts are manic-depressive,” he says. “Analysts tend to not bring their estimates up or down fast enough.” He’s documented the errors of their ways. Dreman cites research showing that between 1973 and 1996 Wall Street’s earnings estimates were off by an average of 44 percent.
He completely warns off individual investors from initial public offerings, another maxim that’s anathema to tech investors. Between 1970 and 1990, he says, the median return for all IPOs was negative 45 percent.
“If you take out some huge winners–and the average investor never gets anywhere near them–the performance hasn’t been that good,” he says.