Contrarian guru David Dreman says investors are still suffering from “Battered Investor Syndrome”, avoiding stocks even as a myriad of good values present themselves.
“Investors are battered,” Dreman tells Canada’s CTV News. “They are still very disenchanted. … A fair amount of our money is also flowing abroad,” he says, referring to the trend of investors shunning U.S. stocks and snatching up emerging market buys.
While many pundits and investors are talking about a “new normal” for stocks and the economy, Dreman says he’s sticking to his strategy of investing in big, high-quality stocks that have been beaten down by fear or apathy. “Over 30 years, I’ve heard this many times: ‘Well, [this contrarian strategy] doesn’t work any more.’ It can be out of favour, but it really is based on pretty modern investor psychology. Unless human nature changes, it should work over time.”
Dreman also says patience is key for a contrarian approach, since you don’t know when investors will recognize the bargains they’re passing up. Asked what it will take to get investors to return to the market, he says, “There’s one thing that always does that, and that’s a rising market. If human nature hasn’t changed, they have to see a market that’s going to be up pretty significantly over a few years. Then, at some point, people start rushing back in. But there are absolutely no signs of anything but redemptions at this point.”