Ever Wanted To Invest Like The Market’s Leading Pros?

Using David Dreman's proven approach, you can find growth stocks driven by solid fundamentals, not market fads. AAII shows you how. [unsubscribe]( [AAII_Logo_4 lines (1)]( How to Profit From Irrational Investors Much of the market growth seen this year has been influenced by a handful of growth stocks. Yet many with fresh memories of the housing and tech bubbles don’t want to chase momentum lest your capital be the tip of a house of cards that collapses after one earnings miss. And you may have good reason for your reticence. [Markowski-Matt-200] Matt Markowski Analyst & Editor, Stock Superstars Report [Try Stock Superstars Today]( Stocks, especially hot ones, can tend toward irrationality. Rallies beget rallies with capital inflows and short squeezes. These surges can ignore fundamentals and economic conditions. Look at Tesla Inc. ([TSLA]( which soared 74% in August despite no major news that would cause a corresponding increase in the present value of future cash flows. It now trades at a 1,151 price-earnings ratio. Nikola Corp. ([NKLA]( another hot stock that’s jumped 282% this year, doesn’t even have a working prototype of its promised electric/hydrogen-powered pickup truck. All it takes is one bad earnings report to pop these potential bubbles and send stock prices tumbling. But though these events can be unnerving to certain investors, investing superstar guru David Dreman exploits these inefficiencies to his advantage. We chose Dreman as an investing superstar because of his groundbreaking work in contrarian investing. Have Questions About SSR? Call us at (312) 847-4974 to learn more. How David Dreman Does It David Dreman, legendary asset manager, found through his research that even a small earnings miss by highly valued companies can cause stock prices to tumble. He claims that this happens because we are poor forecasters whose psychological biases generally interfere with sound investment decisions. Understanding our biases and preventing them from clouding our judgment allows us to profit from the irrationality in others. Rather than gambling on the newest fad Dreman argues that investors should revisit value stocks out of market favor that, historically, generate more consistent returns. In other words: Focus less on slugging percentage and turn your attention to on-base percentage. In Dreman’s strategy, you opt for a stream of winners rather than the occasional knockout. Why does this strategy work? Because of downside resilience. Whereas high-flying stocks crumble on negative news, discounted value stocks already have disappointment priced in. With such low expectations, when low price-earnings stocks see positive surprises, prices often soar, rewarding patient investors who take a contrarian approach! Here are a few other secrets to Dreman’s success. Dreman Prefers Medium- and Large-Cap Value Dreman takes a simple approach to valuation. He begins his screening by looking at stocks ranked in the bottom 40% by price-earnings ratio. From there, he further culls the list to large and medium-sized companies because they have a greater chance of rebounding from a company misstep, greater market visibility and reduced chance of “accounting gimmickry.” His research found that few large firms have ever gone completely out of business. Their resiliency means that companies can weather economic downturns and realize substantial turnarounds with significant price appreciation after rising to the challenge. Small companies may not have the cash to reach this stage in a market cycle. For the same reason that you might have argued with Dreman’s conclusion by exclaiming “AIG! Lehman Brothers! GM!,” Dreman prefers large companies to small companies: Visibility. Well-known and often-undervalued stocks get noticed quickly when their performance turns around. This should result in higher valuation for a given level of earnings and a quicker price appreciation given increasing earnings or surprises. To apply Dreman’s guidelines, the AAII Stock Superstars approach only looks at companies ranked in the top 30% by U.S. market capitalization. Ready to dive into the Stock Superstars Report? Call us at (312) 847-4974 to learn more. Dreman Focuses on Financial Strength Dreman also stresses considering the financial strength of a company when pursuing a contrarian investment strategy. That buffer lets companies work through periods of operating difficulty. Here, investors must consider both short-term obligations and long-term obligations. AAII makes this easy for investors by filtering considered stocks down to those with total liabilities to assets below the norms for their sector. Here’s an important point: Investors employing a contrarian strategy should not simply buy companies with low price-earnings ratios. Investors need to look for mispriced stocks where the companies are expected to grow and prosper in the future. The Stock Superstars Report Dreman-inspired portfolio accomplishes this by screening stocks for trailing 12-month and one-year earnings growth rates greater than the median for all stocks on U.S. exchanges. Lastly, Dreman has observed that these beaten-down stocks react more strongly to positive earnings surprises and upward earnings revisions than high price-earnings stocks. That’s because positive surprises act as reinforcing events for popular stocks, not changers of fundamental perception as they are for value stocks. As such, AAII mandates that any stocks considered for Dreman portfolio selection must have a B grade or better for our A+ Investor Estimate Revisions Grade. AAII’s [Stock Superstars Report]( makes it easy to employ Dreman’s contrarian strategy by codifying these rules and applying them to the entire universe of U.S. exchange-listed stocks. The end result? We developed a model portfolio inspired by Dreman, as well as a watchlist, supplying subscribers with a constant stream of stock ideas free from market hype. [Phone Number Banners SSR]( Ready to See It in Action? Check Out These Winning Superstar Stocks [For just $248 you get full access to our Dreman-inspired portfolio AND 30 other stocks]( following the strategies of the market’s greatest investors AND free AAII membership. In other words, you will receive full access to AAII’s premium subscription service — Stock Superstars Report. You’ll be able to see all the holdings, receive issues of the SSR newsletter, learn about portfolio updates and more. Click the button below or call us at (312) 847-4974 to subscribe today. [Join Stock Superstars Report Today]( Regards, [Matt Markowski signature] Matt Markowski Analyst & Editor, Stock Superstars Report [Facebook]( [Twitter]( [Instagram]( We make no representations or warranties that any investor will, or is likely to, achieve profits similar to those shown, because past, hypothetical or simulated performance is not necessarily indicative of future results. Before making an investment decision, you should consider your circumstances and whether the information on our content is applicable to your situation. This information was prepared in good faith and we accept no liability for any errors or omissions. The full disclaimer can be read [here](. ©2023 The American Association of Individual Investors 625 North Michigan Avenue, Suite 1900, Chicago, Illinois 60611. You received this email because you are subscribed to Growth Investing from AAII. Update your [email preferences]( to choose the types of emails you receive. 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