David Dreman, chairman of Dreman Value Management, has long studied the psychological underpinnings of the overall stock market and its impact upon valuation levels. Instead of assuming a rational market as traditional academic studies do, Dreman sees stocks and markets driven by emotions that often push prices from their intrinsic value. Dreman feels that the best approach to beating the market is to follow the principles of contrarian investing.

Contrarian investing involves betting against the crowd by seeking stocks that are out of favor with the market, and avoiding the fashionable, high profile stocks that have been swept up in market euphoria. Eventually the market rediscovers the good qualities of the out-of-favor stocks and lets the high-fliers fall back to earth.

David Dreman is most associated with the contrarian investment style through his books, long-running Forbes column, and money management activities. We profiled the Dreman contrarian investment strategy in two AAII Journal articles in 1997 [July and October] and developed a contrarian stock screen for Stock Investor based primarily on the price-earnings ratio. David Dreman has now published a new book titled "Contrarian Investment Strategies: The Next Generation" (Simon and Schuster; 800/223-2336; www.simonsays.com), which expands upon the price-earnings strategy of previous editions and presents additional measures for identifying contrarian stocks.

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