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David Dreman: Inflation Heats Up: Stay Cool in Value Stocks

March 28, 2011 | About:
guruek

guruek

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David Dreman, chairman and Chief Investment Officer of Dreman Value Management penned an column for Forbes lately entitled Inflation Heats Up: Stay Cool in Value Stocks.

Dreman writes for Forbes from time to time and recommend stocks. Last year, he recommended 19 stocks in his Forbes articles and together they reaped a return of 18%, outperforming the S&P by about 3%. In 2009, the out performance was 7%.

Dreman is a believer in value investing and stock investing in general. This month he took a shot at the “New Normal” theory advocated by Mohamed El-Erian of Pimco:
"New normal" thinking put forward by Mohamed El-Erian of Pimco held that lower stock returns were not just transitory effects of the financial crisis. Instead, deleveraging and dampened consumer spending would depress equity valuations for years to come. Like the "new era" of the 1920s and the "new economy" floated during the dot-com bubble, the theory captivated professionals and the media but lost luster as stocks doubled from their lows. It has since silently faded away.


Despite his forecast that inflation will hit us, Dreman remains bullish towards equity market, so bullish that not an earthquake or a tsunami in Japan will deter him. As a matter a fact, he become bullish towards Japan because of the natural disaster:
Horrible exogenous events can tempt you to give up faith in the bullish case for stocks. How serious will the enormous earthquake and tsunami in Japan impact the world economy? Although the calamity is among the worst in recent history, I believe that world markets will bounce back quickly. Japan has a tradition of rapidly helping its major companies, and the market reaction to economic damage is normally exaggerated--both in magnitude as well as in expectations for the time it will take to repair. For the less timid investor, a small position in the iShares MSCI Japan Index (EWJ, 10), an ETF holding more than 300 Japanese stocks, should pay off well over time.


Read the full text by David Dreman at Forbes.com.


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