David Dreman : Tug of War

Last year I got the overall market call nearly dead-on. I forecast an S&P 500 total return of 5% (it did 5.5%) and a 10% correction along the way (the index was down 9.9% between Oct. 9 and Nov. 26). I predicted that large stocks would outperform their small- and midcapitalization brethren for the first time in seven years; the Russell 2000 index of smaller stocks underperformed the big-company S&P by 7.1 percentage points.

I didn't do well with my stock picks, which included a heavy dose of financial stocks. My 24 picks, including 7 held over from 2006, fell an average 7.5%, after hypothetical trading costs; had you put the same amounts on the same dates in the S&P (without costs), you would have had a gain of 1.2%. It was the end of a good streak for me. Over the preceding six years (through the end of 2006), my recommendations increased an average 7% annually, triple what shadow investments in the S&P 500 would have done. Put back dividends--these aren't included in the forbes computations--and I would have scored significantly better.

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