This man predicted the future.
He discovered why investors will pay 100x what a stock is worth when they're in love with it.
Here's how his contrarian approach beat the market for 13 consecutive years:
David Dreman wasn't your typical Wall Street analyst.
While others chased hot stocks, he studied something different:
The psychology behind why investors make terrible decisions.
What he found would make millions lose sleep:
While others chased hot stocks, he studied something different:
The psychology behind why investors make terrible decisions.
What he found would make millions lose sleep:
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"The more we like something, the more we're willing to pay."
It's not just greed. It's how we're wired.
We get emotionally attached to ideas and ignore the real value.
Most investors never recover from this mistake.
It's not just greed. It's how we're wired.
We get emotionally attached to ideas and ignore the real value.
Most investors never recover from this mistake.
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Dreman opened his own firm in 1977.
For decades, he got results by loading up on stocks that were overlooked, beaten up, or in the midst of crisis....
Then unloading them when the market valued them at about the same level it valued most stocks.
For decades, he got results by loading up on stocks that were overlooked, beaten up, or in the midst of crisis....
Then unloading them when the market valued them at about the same level it valued most stocks.
His strategy flips conventional wisdom on its head:
Buy what others hate. Sell what others love.
Here's 7 other counterintuitive principles you can take from Dreman:
Buy what others hate. Sell what others love.
Here's 7 other counterintuitive principles you can take from Dreman:
1. The Emotion Canyon
The moment you get emotional about an investment, you've lost objectivity. Keep a canyon between emotion and action.
Rule 1: Never fall in love.
The moment you get emotional about an investment, you've lost objectivity. Keep a canyon between emotion and action.
Rule 1: Never fall in love.
Dreman used a data-driven approach…
He followed the research that proved what outperformed the market consistently over long periods:
- Low price-earnings ratios
- Low price-to-book value rations
- Higher than average yields
And then he stuck with it. BUT...
He followed the research that proved what outperformed the market consistently over long periods:
- Low price-earnings ratios
- Low price-to-book value rations
- Higher than average yields
And then he stuck with it. BUT...
2. No Strategy Works ALL the Time
Take no risk = let inflation nibble away at your $
Take little risk = you can get rich, slowly
Pick a strategy, run the process, iterate when necessary = higher reward, but higher risk
Take no risk = let inflation nibble away at your $
Take little risk = you can get rich, slowly
Pick a strategy, run the process, iterate when necessary = higher reward, but higher risk
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3. Diversify Widely
"If you're right 60% of the time, you're doing very well."
Dreman doesn't play with 10-20 stocks. He holds 50-60 positions, all equally weighted.
"If you're right 60% of the time, you're doing very well."
Dreman doesn't play with 10-20 stocks. He holds 50-60 positions, all equally weighted.
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4. Avoid Complexity
Don't invest in what you don’t understand.
Never, EVER invest in what the pros don’t even understand.
On the '08 crisis: “Even when you talked to senior people at major banks, they may not have known themselves how much they owned in subprime.”
Don't invest in what you don’t understand.
Never, EVER invest in what the pros don’t even understand.
On the '08 crisis: “Even when you talked to senior people at major banks, they may not have known themselves how much they owned in subprime.”
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5. Be a Surgeon
Cut out cancers.
"Temporary" problems have a nasty habit of becoming permanent.
Remember: The market doesn't care about your hopes or theories.
A loss is a loss. Dreman says cut it fast.
Cut out cancers.
"Temporary" problems have a nasty habit of becoming permanent.
Remember: The market doesn't care about your hopes or theories.
A loss is a loss. Dreman says cut it fast.
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6. Billions in the Boring
9 times out of 10, the reason why people overpay for deals?
They value sexiness over financials.
“People like exciting stories. They don’t like boring companies. That is the normal cause of investor overreaction.” – Dreman
9 times out of 10, the reason why people overpay for deals?
They value sexiness over financials.
“People like exciting stories. They don’t like boring companies. That is the normal cause of investor overreaction.” – Dreman
7. The Dark Side of Being Contrarian
When you’re right, you’re REALLY right.
But…
When you’re right, you’re REALLY right.
But…
When you’re wrong, the danger of going the opposite direction from everyone else catches up with you.
Trends come and go. Strong fundamentals endure.
This is how generational wealth is built.
Here's the thing about market psychology:
It hasn't changed since Dreman started studying it in the 70s.
This is how generational wealth is built.
Here's the thing about market psychology:
It hasn't changed since Dreman started studying it in the 70s.
People still fall in love with stories.
They still overpay for hype.
They still panic sell at the bottom.
That's your edge.
They still overpay for hype.
They still panic sell at the bottom.
That's your edge.
The same principles can apply to SMBs. Find "unloved" businesses making serious money:
• Boring industries with fat margins
• Unsexy companies with strong cashflow
• Hidden gems others ignore
You just need to think differently about making money.
• Boring industries with fat margins
• Unsexy companies with strong cashflow
• Hidden gems others ignore
You just need to think differently about making money.
But if you want to be poor, do the opposite of all this 😉
Hope this was useful.
If it was, feel free to share here & follow @Codie_Sanchez:
Hope this was useful.
If it was, feel free to share here & follow @Codie_Sanchez:
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