Screening for Stocks Using David Dreman’s Contrarian Strategy

November 21, 2015

The philosophy and investment style of David Dreman was examined in the November 2015 issue of the AAII Journal. Here we derive quantitative metrics from David Dreman’s contrarian approach and implement them into a stock screen to arrive at a list of prospective stocks that may warrant further analysis. AAII’s Stock Investor Pro fundamental stock screening and research database program was used to create the Dreman screen.

David Dreman’s contrarian investing approach involves avoiding the high-flying stocks that the market is most optimistic about and purchasing the stocks that are out of favor with the market. Essentially, a contrarian goes against the crowd.

Dreman’s books often cite research from academic studies proving that humans take “mental shortcuts” when making decisions. While mental shortcuts have benefits in our day-to-day lives, they affect us when it comes to investing.

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