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(John Cullen)
(John Cullen)

Invest like a legend: David Dreman Add to ...

Chairman and managing director of Dreman Value Management, LLC, and author of Contrarian Investment Strategies: The Psychological Edge , published in January, 2012

HOW I'D INVEST $100,000 RIGHT NOW: I’d put it in good-quality stocks in a portfolio large enough to diversify, or, for the average investor, an index fund. Stocks have traditionally gone up if we see inflation coming. We’re not seeing much inflation yet, but we’ve been printing an awful lot of money; in the United States, they’ve printed $7 trillion since 2008. I’ve never seen the two not meet.

BEST INVESTMENT: The sin stocks—tobacco. We’ve owned Philip Morris and R.J. Reynolds for many years. These stocks collapsed in the early 2000s because the companies were losing court cases. But we studied this carefully, and it looked like the Supreme Court was swinging the other way. When it put a lid on punitive damages, the stocks took off.

WORST INVESTMENT: Fannie Mae and Freddie Mac. They were more political disasters than anything else. FDR set up Fannie Mae in the Depression, and it worked well. But both Republicans and Democrats wanted to have more low-cost housing, and they pushed Fannie and Freddie to lower the standards on mortgage loans.

BIGGEST OPPORTUNITIES: U.S. stocks, and I’d include Canada there. For my book, I went back 25 years on the S&P 500 versus foreign markets, and this was just before the European downturn. It was a dead heat—in fact, U.S. stocks did somewhat better. There isn’t a lot of liquidity in markets in developing countries, so you’re taking extra risk for the same gain.

ADVICE FOR INVESTORS: On the whole, investors don’t do as well as markets. Even money managers want to buy hot stocks, and they waive their valuation rules. It’s very hard not to go along with something that’s exciting. The Internet, for example, was going to change our lives forever—and it did. But people paid 50 times what stocks were really worth.

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