David Dreman, noted financial strategist and author, is not about to yank all his investments from the market because of a wishy-washy environment that has been up one day and down the next.
He's in for the long haul.
Still, Mr. Dreman's message comes through loud and clear - stay cautious and selective.
He advises investors to take a hard look at their market holdings in light of high stock valuations plus economic and political turmoil in Asia and parts of Eastern Europe.
Dreman favors a bottoms-up approach, looking at specific companies and mutual funds rather than broad sectors of the economy.
Dreman's approach takes a contrarian approach that looks for "value" - companies that have been beaten down, disregarded, or have fallen from favor with the investment community, as many oil stocks have in recent months.
If a stock or investment looks promising for the long haul, acquire or keep it, notwithstanding its public disfavor. If an investment is suddenly very popular, yet has unusually high market valuations, question why you want to keep that investment.
And be wary of market pundits, whether in the media or in the Wall Street investment community.
Soft-spoken and humorous, Dreman is perhaps the dean of contrarian investors in the United States - a genuine financial intellectual who loves going against the crowd.
He has written several critically acclaimed books on contrarian investing, including the newly released "Contrarian Investment Strategies: The Next Generation" (Simon & Schuster, $25.)
He is chairman of Dreman Value Management, a financial firm operating out of Red Bank, N.J.. The mutual fund he started a decade ago, and still manages, Kemper-Dreman High Return Fund (800-621-1048) has given shareholders annual average returns of 30 percent over three years and 23 percent over the past five.
Dreman's basic thrust: Use a value approach; avoid the herd; avoid excesses.
Taking a contrary approach in the market place of 1998 is not easy. "This is the most difficult market I've ever seen," he says, pointing to a combination of high stock valuations, sluggish corporate profits, political and economic turmoil in Asia and Russia, and low trading levels measured by tepid market volume.
"I'd be a little defensive right now," he says, despite recent gains.
Still, there are sectors, and stocks that Dreman finds promising. They include financial service firms and banks, especially smaller regional institutions; selected oil stocks, since "prices are likely to rise" in the months ahead; selected consumer companies, such as Toys "R" Us, and - a sector that some may find ethically objectionable - tobacco companies.
Dreman notes that tobacco firms also rank among the largest US food companies, and their reliance on tobacco is declining while their divisions that produce food products post solid gains.
He avoids Asian-based companies. "It's too soon to recommit to that market," following currency devaluations in that region, he says. "Japan may be a good buy several months from now," but he is wary of Japanese banks.
Russia, he believes, faces difficult political and economic head winds. He likes Europe.
Although Dreman believes a careful, small investor can do just as well as a mutual fund manager, he still sees the mutual fund as an important wealth-building tool.
His strategy is value-oriented: Find solid companies with low price-to-earnings-ratios (stock price divided by earnings per share), low price-to-cash flow, low price-to-book value, and high dividends.
Finally, "buy the cheapest stocks within an industry," he says.
Two final Dreman biases:
* He is wary of go-go technology stocks. They may be exciting to own, he says, but they can be very volatile. In terms of profitability, the high-tech high-flyers, particularly small firms, tend to perform poorly over time.
He prefers the blue-chip standbys of the S&P 500 and New York Stock Exchange. These are some of the biggest companies in the US, and they continue to lead markets around the world. For stocks on the Nasdaq or American Stock Exchange, he favors the larger companies.
* He also dislikes what he calls "small, fast-track mutual funds." These funds are often relative newcomers - with perhaps $50 million under management - that concentrate on a sector or theme.
They often run up spectacular gains, and just as often the gains don't last. The funds can quickly wind up at the bottom of the heap.