Read Contrarian Investment Strategy: the psychology of stock market success by David Dreman Free Online
Book Title: Contrarian Investment Strategy: the psychology of stock market success|
The author of the book: David Dreman
ISBN 13: 9780394423906
Format files: PDF
The size of the: 4.14 MB
City - Country: No data
Loaded: 2748 times
Reader ratings: 3.7
Edition: Random House
Date of issue: January 12th 1980
Read full description of the books:
David Dreman's Contrarian Investment Strategy should occupy the 3rd place in the Hall of Investment Classics, which puts it only after Graham's Intelligent Investor and Fisher's Common Stocks and Uncommon Profits. The most important value of this book is Dreman's commitment into the treacherous water of "market irrationality", which both Graham and Fisher recognized, but neither made serious attempts to explain. "Rational market", as the basic assumption the Efficient Market Hypothesis (EMH), is also the hypothesis cornerstone. Through this book, Dreman systematically demonstrated the absurdity of such an assumption, and proved that the market is everything but rational. This landed a crucial piece of theoretical support on fundamentalists analysts like Graham and Fisher, whose investment thesis lies on the mis-valuation of the market.
I tried to extract points from the book, which I believe are either unique or original (as far as the field of investment concerns). They have been grouped into 3 categories: Psychology in Group Thinking, Psychology in Statistics and Psychology in Investments. I hope such list can be used as a quick reference this great work of Dreman?€?s.
Psychology in Group Thinking:
Gustave LeBon's theory of "psychological crowd"
Crowds think, and only think, in images. To capture the crowd, this image must be extremely simple. Crowds scarcely distinguish between the subjective and the objective. Individuals in the crowd are primitive beings.
Our beliefs, values and attitudes can be thought to lie along a continuum. On the one end, there are "physical reality", which are abundantly clear and do not require other people's confirmation. On the other end, there are those lack of firm support "social reality" (like the existence of God, etc.), which requires social proof to uphold. The more vague and complex the situation is, the more we rely on other people whose intelligence we respect. This tends to comfort people, as it reduces the level uncertainty. When the dependency on physical realty is low, the dependency on social reality is bond to be high, as man, psychologically, can only take up to a certain level of uncertainty.
The "autokinetic effect" experiment on the convergence of opinion in group:
People who are liked (like bias), who have high status (authority bias), who are reputed to be competent on the judgmental task (authority bias) or who merely exude self-confidence are more effective in influencing others. The opinion of a group "converges" as the group interacts.
Nobel Laureate Herbert Simon
Human processes very small proportion of info he receives. The filtering process is NOT passive, which provides a pretty reasonable representation of the real world, but active. "We only see what we set out to see."
Humans are much worse in solving configural problem, when different aspects of the problem interact, than serial problem, when a complex problem can be broken down sequential steps. (So one should always try to transfer a complex configural problem into a serial problem before trying to solve it)
Psychology in Statistics:
Amos Tversky and Daniel Kahneman's "law of small numbers" - when too much faith has been put on too small sampling size.
When analyzing, one should try to avoid drawing conclusion bases on too small sampling size (law of small numbers), or drawing conclusion from unreliable or irrelevant "case rate" (the available info in a specific situation).
The more "case rate" is considered to be unreliable, the more one should rely on the "base rate" ---in general info statistical for the entire category.
Avoid over-reliance on non-reprehensive data (data drawn from a small sampling size or from only a short period of time)
Avoid over-reliance on unreliable or irrelevant case data
Avoid over-emphasis on abnormally high / low one time data deviated sharply from the norms, because such abnormally is bond to regress back to the mean.
Data with a higher variance are no less reliable that data with a lower variance, in determining trends / average
People count more on experience that they can remember: recent, vivid or emotionally charged.
Psychology in Investment:
The realignment of price and value is neither immediate nor consistent. (Take both time and some random walk). People prefer to see strong and immediate correlation between the price and the perceived value of a stock, as it offers an immediate explanation (reason bias) of the prevalent phenomenon, which provide comfort psychologically by reducing the level of uncertainty.
The school technical analysis views that all fundamental information about a security has already been reflected in the price.
Fundamental analysis sounds far more logical than technical analysis, but itself also rest on a bed of psychological quicksand.
Download Contrarian Investment Strategy: the psychology of stock market success ERUB
Download Contrarian Investment Strategy: the psychology of stock market success DOC
Download Contrarian Investment Strategy: the psychology of stock market success TXT
Read information about the authorDavid Dreman is a noted investor, who founded and is the Chairman of Dreman Value Management, an investment company. His father, Joseph Dreman, was a prominent trader on the Winnipeg Commodity Exchange for many years. David Dreman graduated from the University of Manitoba in 1958. After graduating, he worked as director of research for Rauscher Pierce, senior investment officer with Seligman, and senior editor of the Value Line Investment Service.
Dreman was awarded a Doctor of Laws Degree from the University of Manitoba in 1999 and is a member of the Board of Trustees of the university.
Dreman has published many scholarly articles and he has written four books. Dreman also writes a column for Forbes Magazine. Dreman is on the board of directors of the Institute of Behavioral Finance, publisher of the Journal of Behavioral Finance.