David Dreman

3 Steps To Better Returns

Below is a list of simple steps one can take to increase investment results. The list is not the holy grail of “How to beat the market”, but I feel it should help avoid major blowups in a portfolio.

1. Avoid the market while it is open.

As mentioned in my article The Secret To Value Investing, avoiding the market while it is open will rid of any temptation one might get while watching CNBC.

2. Read, Read,and Read More

Warren Buffett is a perfect example of a reading machine. According to CNBC.com, while on the way to China, Becky Quick was amazed by how much Warren Buffett reads and how quick he reads. Warren Buffett usually reads six newspapers a day.

• The Wall Street Journal
• USA Today
• The Financial Times
• The New York Times
• Omaha-World Herald
• American Banker

3. Employ a low P/E approach to stock selection and avoid potential bankruptcies and “hot” stocks.

I am a big believer in applying a low P/E strategy. Every study that I have read has showed a low P/E portfolio will outperform the market indexes in the long run. According to Dreman.com, the website for Dreman Value Managemtn,LLC, their investing philosophy is based on a low P/E approach, short term market overreactions, and having a disciplined and consistent investing style. Their contrarian philosophy is summarized below:

Low P/E approach - we look for stocks where the price to earnings ratio is low and the company exhibits strong fundamentals, as well as a history of earnings growth that we through extensive research, believe will persist into the future.

Market overreactions - Years of proprietary research in behavioral finance help us distinguish between short term changes in the market and long term trends. We are able to take advantage of short term swings in order to buy fundamentally strong stocks at bargain prices.

Discipline and consistency in style - we have applied our investment strategy without wavering since inception and have avoided getting caught up in the rush of market.

Each item on the list can and should be expanded. The internet is changing the world’s information landscape. One is able to access millions of news sources ranging from personal blogs to community driven stock market news (i.e. valueinvestingnews.com). In addition, individuals can now join forums that pertain to a certain hobby. I am active in a value investing forum that is full of high quality posts by real value investors.

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© 2008 Contrarian Value Investing.