Investment Guru David Dreman wrote a column for Forbes recently entitled Debunking Beta. In the article he proposes we take Capital Asset Pricing Model (CAPM) and its central concept Beta out of the textbook of the MBA programs. He thinks CAPM has done more harm than good. As a matter of fact, he blames the theory for the three major market crashes since it was accepted widely in the investment community in 1980s: the Crash of 1987, Long-Term Capital in 1998 and the subprime debacle we are still working through.
The theory is so discredited that even the father of efficient markets, Eugene Fama, began distancing himself from this famous theory years ago, according to Dreman.
Instead, Dreman recommends we go back to the book Security Analysis written by Graham and Dodd for proper measurement of risk: excess leverage, illiquidity and other risks that CAPM ignores. In the book, the two recommended “buying firms with strong, identifiable earning power and stressed the importance of stockholder dividends.”
Dreman recommends investors look into the following individual dividend stocks:
Read Dreman's letter Debunking Beta
To view Dreman’s complete long equity positions and trading activities, click: http://www.gurufocus.com/holdings.php?GuruName=David+Dreman
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The theory is so discredited that even the father of efficient markets, Eugene Fama, began distancing himself from this famous theory years ago, according to Dreman.
Instead, Dreman recommends we go back to the book Security Analysis written by Graham and Dodd for proper measurement of risk: excess leverage, illiquidity and other risks that CAPM ignores. In the book, the two recommended “buying firms with strong, identifiable earning power and stressed the importance of stockholder dividends.”
Dreman recommends investors look into the following individual dividend stocks:
Altria (MO, Financial), through infamous subsidiary Philip Morris, is the nation's largest tobacco company. Altria has increased its dividend in virtually every year since the 1930s. It recently raised its dividend again, 8.6%. The stock trades at a P/E of 12 and yields a mouthwatering 6.7%. If you don't mind supporting a beer and cigarette company, it's a keeper.
ConocoPhillips (COP, Financial) is an integrated oil and petrochemical company with operations in 30 countries. Earnings have rebounded sharply from depressed 2009 levels. First-half 2010 earnings were up more than 110% versus the first half of 2009. ConocoPhillips trades at a P/E of 9, yielding 4%.
Pfizer (PFE, Financial) is a great big pharmaceutical company best known for products like Lipitor, Xanax and Viagra. It is also in hospital products and animal health lines. With the recent acquisition of Wyeth complete, Pfizer stands to benefit from cost savings, estimated at $4 billion to $5 billion over three years, as well as a group of promising new drugs like Apixaban and Tasocitinib. The stock trades at a P/E of 7, yielding 4.6%.
Read Dreman's letter Debunking Beta
To view Dreman’s complete long equity positions and trading activities, click: http://www.gurufocus.com/holdings.php?GuruName=David+Dreman
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and David Dreman for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
Also check out:
