Is a deep-value-based approach to investing the same as being a contrarian? It’s a question I’ve struggled with over the past few days. The criteria on which this week’s screen is built are based loosely on the methods employed by David Dreman, a Canadian former fund manager famed for his insights into behavioural finance.
The author of no fewer than four books on contrarian investing, his career is synonymous with the insight (and financial rewards) that can accrue from adopting an anti-herd mindset.
Like several other famed investors, including Benjamin Graham and Joel Greenblatt, Dreman’s philosophy starts from the observation that stock markets are often deeply irrational, and regularly produce disconnects between market prices and real value. His approach to these disconnects, which for a decade we have sought to codify in stock screen form, is nevertheless conventional, and rests on a handful of classic metrics beloved of deep-value investors.