University of Manitoba - University Governance - David N. Dreman, LL.D., May 26, 1999
David N. Dreman, LL.D., May 26, 1999

David N. Dreman

First and foremost, David Dreman, like his father, is a contrarian. In everyday language, a contrarian is someone who goes against the flow - someone who challenges conventional thinking. In Wall Street parlance, a contrarian is an investor who buys when everyone else is selling and sells when everyone else is buying. In short, contrarians go against the market. David Dreman has developed an international reputation in the investment business by religiously following an investment strategy that has changed the traditional academic and investor paradigms that have guided investment decisions for decades. He has been referred to as the "Dean of Contrarians," the "Maharajah of the Multiples", and The Los Angeles Times has called him "one of the masters of  'value' investing." The New York Times notes that "Dreman is the grand master of a simple yet psychologically challenging investment strategy: consummate contrarianism." His simple investing rules define the essence of the contrarian investment philosophy:
look for stocks with below-average price/earnings ratios, below-average debt/equity ratios and above-average earnings-growth rates and dividend yields. These are precisely the stocks that the experts will be avoiding
- which makes them attractive to the contrarian.

Born in Winnipeg in 1936, the son of Joseph and Rae Dreman, David Dreman was raised in the investment business. His father joined a brokerage firm specializing in commodity trading which eventually became Dreman & Company Ltd. in 1929. Although now 88 years old and officially retired, his father Joseph can still be seen occasionally on the trading floor of the Winnipeg Commodity Exchange. As early as age nine, Mr. Dreman recalls observing his father's contrarian behavior in trading commodities and it was there he learned the discipline that is required of true contrarians. His father taught him that the consensus of the experts is usually wrong, which is why the contrarian philosophy can be so effective. Today, Mr. Dreman has honed and developed the contrarian instincts he learned many years ago in Winnipeg into one of the most successful investment firms on Wall Street managing funds of over $7.5 billion. The Kemper-Dreman High Return Fund, which he manages, has been ranked the best-performing of over 5,000 mutual funds for more time periods than any other and it has been the number one fund in the LipperIncome category over the past decade. It has given shareholders annual average returns of 30 per cent over three years and 23 per cent over the past five years.

A Commerce graduate of 1957, Mr. Dreman specialized in finance in economics and was co-founder of the Student Investment Club. As a Commerce student, he was noted for continually challenging the investment theories of the day in class discussions. Fortunately, he remembers, the small classes and the encouragement of critical thinking by his professors helped him further refine his contrarian philosophy.

Following his graduation from the University of Manitoba, he worked for his father at Dreman & Company for six years, setting up and operating the investment business. Several years later the excitement of the New York markets lured him into the investment management business. He worked as an investment advisor and security analyst for more than 20 years at major investment companies. He was Director of New York Research for Rauscher Pierce Refsnes Securities Corp., Senior Investment Officer with J&W Seligman, and Senior Editor with the Value Line Investment Service. He went out on his own in 1976 and founded his first investment firm based upon his contrarian philosophy, Dreman Value Management, Inc., serving as its President until 1989. He was Chairman of Dreman Value Management, L.P. from 1989 to 1995, and Chairman of Dreman Value Advisors, Inc. from 1995 to 1997. Today he is the founder, Chairman, and Chief Investment Officer of Dreman Value Management, L.L. C., a firm specializing in managing the assets of pension, foundation, and endowment funds, as well as high net-worth individuals.

Mr. Dreman's influence and impact upon our understanding of financial markets could easily be his greatest contribution to portfolio theory. His contrarian approach was generally downplayed by academics since his precepts challenged one of the most fundamental principles of market behavior - the efficient market hypothesis (EMH). The EMH proposes that new information is immediately reflected in the market, and that the market reflects the correct price. Scorned by leading finance and economic academics for years, Mr. Dreman’s contrarian approach has recently gained acceptance in the academic community as the result of research published by anti-contrarian academics as well as by Mr. Dreman. As a result of Mr. Dreman's work, and his unwavering contrarian approach, the EMH is now in question as a reliable predictor of market behavior.

 Mr. Dreman's contribution to the understanding of financial markets goes beyond the study of finance itself. His contrarian philosophy is based as much on the behavioral sciences - psychology, sociology, and anthropology - as it is on the rigorous mathematical studies of market behavior. His first book, Psychology of the Stock Market(1977), detailed his theory that irrational decision-making, crowd psychology, and groupthink all help determine market behavior. His belief in the value of understanding the field of behavioral finance has led him to establish a new journal called The Journal of Psychology and Finance which will encourage research by psychologists, sociologists, anthropologists, as well as Wall Street practitioners.

Mr. Dreman has written extensively about his contrarian approach. His practical yet scientific approach to investing was first detailed in his book Contrarian Investment Strategy (1977) and subsequently updated in The New Contrarian Investment Strategy(1980), and his most recent version Contrarian Investment Strategies: The Next Generation (1998). He has been a regular columnist for Forbes for 18 years and has been featured in articles in numerous investment publications, including Barron's, Institutional Investor, The Wall Street Journal, The New York Times, Newsweek, Money, and Fortune magazines. He has also been a frequent guest on Louis Rukeyser's Wall Street Week television program. His research findings have been published in The Financial Analysts Journal and The Journal of Investing.

Mr. Dreman is also a member of the Board of Directors of The University of Manitoba Foundation USA, Inc.

He and his wife Holly and their two children, David and Meredith, divide their time between their residences in Aspen, Colorado and New Jersey. They can also be found sailing to world ports on their yacht, appropriately named The Contrarian.