Contrarian Picks Based on David Dreman’s Philosophy

The famous investor David Dreman, who Kiplinger once referred to as the “consummate contrarian”, follows a strategy which capitalizes on the emotional, knee-jerk reactions that make unpopular stocks underpriced, writes Validea CEO John Reese in TheStreet. This is no coincidence, given Dreman’s knowledge and experience in the area of behavioral finance. Dreman identifies such undervalued companies, Reese explains, by comparing their share prices to four different financial variables that gauge the strength of the underlying… Read More

On Becoming Warren Buffett and Some Fat-Pitch Picks

As explained by the legend himself in the recent HBO documentary “Becoming Warren Buffett”, the Oracle of Omaha stays within what he calls his “Circle of Competence” when investing. This according to a recent Forbes article by Validea CEO John Reese. This includes, writes Reese, “knowing what you know, and steering clear of what you don’t.” He quotes a comment Buffett offers in the film: “Having an edge is enormously important. With that, however, comes… Read More

Warren Buffett on “Free Money ” Plus Four Picks

In one of his many interviews, Warren Buffett explained how the insurance industry offers the opportunity to “invest in other people’s money and keep all the earnings on those investments,” writes Validea CEO John Reese in TheStreet. The article discusses the evolution of Buffett’s penchant for the insurance business as well as the industry outlook. Using his guru-based stock screening models, Reese identifies four high-scoring, small-cap financial picks: INTL FCStone (INTL), a financial services company… Read More

Three Picks that Benjamin Graham Would Approve

The difference between a company’s actual value (net working capital minus debt) and the value at which its shares sell in the market describes what Benjamin Graham called the “margin of safety.” In a recent article for The Globe and Mail, Validea CEO John Reese offers insights regarding the metric and findings of research concerning its credibility. The article cites Warren Buffett’s explanation of the margin of safety: “You don’t try to buy businesses worth… Read More

Top Stock Picker Follows Graham and Dodd

“For the second consecutive year, the top stock picker is a practitioner of the valuation model introduced in the 1930s by Columbia University professors Benjamin Graham and David Dodd,” writes Bloomberg’s Matthew Winkler. That stock picker is J. David Wagner, vice president of Baltimore-based T. Rowe Price Group and manager of the T. Rowe Price Small-Cap Value Fund, which returned 30 percent last year (more than double that of the S&P 500): Winkler writes, “Wagner’s… Read More

Greenblatt’s Magic Formula-Worthy Picks

Most investors lack patience and don’t understand underperformance, which motivates them to abandon funds when performance dips—precisely the time they shouldn’t, says Joel Greenblatt, co-founder of Gotham Asset Management. In a recent Forbes article, Validea CEO John Reese explains the fundamentals of Greenblatt’s “Magic Formula,” which uses return-on-capital and earnings yield to identify good companies selling for bargain prices. Reese identified the top ten Magic Formula picks and, including the following four that also earn… Read More

A Contrarian View May Be in Order

The seven-year-old bull market that started in the aftermath of the financial crisis could be facing a shift over the next five years, says Validea CEO John Reese in last week’s Globe and Mail. Reese suggests that such a shift could include a resurgence of emerging markets and trends favoring cyclical, value and small cap stocks over defensive, growth and large cap names. “Investors appear to be betting that economic growth has the potential to… Read More

Benjamin Graham Inspired Picks

In his book The Intelligent Investor, the “Father of Value Investing” (and Warren Buffett’s mentor) drives home the importance of evaluating a business’s fundamentals before investing. In a recent article for Forbes, Validea CEO John Reese explains the metrics he used  to create his Graham-inspired stock screening model and offers the following high-scoring picks: Genesco (GCO) is a retailer and wholesaler of footwear, apparel and accessories that earns high marks for its solid revenue base,… Read More

Investing Principles Part II: Identifying Value in Earnings

This section of the Tweedy Browne publication What Has Worked In Investing referenced in yesterday’s blog describes the investment approach related to low price in relation to earnings. Legendary value investor Benjamin Graham’s focused on what he called the “margin of safety” (the difference between a stock’s price and the company’s underlying value) and gravitated toward stocks that had price-earnings ratios below 15. The Tweedy publication references a study that tested Graham’s criteria on stocks… Read More

Investing Principles Part I: Identifying Value based on Assets

This describes the first investment approach outlined in the Tweedy Browne Company publication entitled What Has Worked In Investing referenced in yesterday’s blog post. The net current assets approach was developed and tested by Benjamin Graham between 1930 and 1932 and is described by Tweedy as the “oldest approach to investment in groups of securities with common selection characteristics of which we are aware.”  The technique involves identifying and purchasing those stocks which are “priced at… Read More