The Evidence for Contrarian Stock Selection — Dreman's Data

Most investment strategies are sold on stories and back-tested on short periods. David Dreman's contrarian framework is built on something rarer: decades of systematic data showing that the stocks investors hate most — lowest P/E, lowest P/B, most negative analyst sentiment — consistently outperform the stocks they love, over virtually every meaningful time period tested.

Why This Matters

David Dreman is an empiricist among contrarians. Where Marks articulates the psychology of market extremes and Templeton finds global opportunities at maximum pessimism, Dreman documents the statistical record that shows why contrarian stock selection works systematically — not just anecdotally or in exceptional circumstances. His research, conducted over decades and presented in Contrarian Investment Strategies, examines the returns of stocks sorted by valuation multiples: price-to-earnings, price-to-book, price-to-cash flow, and price-to-dividends. The finding, replicated across multiple time periods, countries, and definitions, is consistent: the cheapest decile of stocks by these measures consistently outperforms the most expensive decile. Not occasionally — persistently, with statistical significance, over holding periods of one to five or more years.