By Linda Stern

WASHINGTON (Reuters) - Three years after a market rout sent investors scurrying in every direction but Wall Street, some financial advisers are tentatively starting to put their clients back into stocks, according to recent reports.

"Gun-shy advisers tiptoe back into equities," read one of these stories, here at Reuters ( http://link.reuters.com/nag96s). The gist of it was that investors, who had been afraid to invest in stocks since the market tanked in 2008, were coming back now that shares were rising briskly. And their advisers were accommodating them.

That seems like particularly bad timing on the part of the experts. Since the market bottomed three years ago this week, the Dow Jones Industrial Average has gone up roughly 100 percent. And now they're tiptoeing back.

It used to be that one of the main benefits offered by advisers was their calming presence when clients were panicking, according to Louis Harvey, president of Dalbar, a research firm that monitors investment behavior. He said that clients got better about not panicking and so advisers aren't so needed now for their hand holding and countervailing advices.

But during the last three years, terrified investors have been bringing their apocalyptic visions to advisers. And, instead of quoting Baron "Buy when blood is running in the streets" Rothschild or even hanging tough, too many advisers just gave clients what they said they wanted. They have been moving clients into bonds, selling them guaranteed annuities, and doing other things to make sure those doors are locked tight, well after that horse has bolted.

"The dash to Treasuries since 2008, and the move out of stocks after stocks were just hacked to pieces was an amazing mistake," says David Dreman, a well-known contrarian investment manager and author of "Contrarian Investment Strategies: The Psychological Edge."

Dreman, who claims to have profited greatly by buying beaten down stocks in 2008 and 2009, charges that most paid advisers don't have the fortitude to buck the trends. "Investment advisers tend to run with the market, so if the market is down, they'll run down; if it's up, they'll run in late."

Harvey suggests that maybe Dreman and I are being a little bit unfair to advisers. The credit and stock market meltdown of 2008 and 2009 was so extreme "the entire investment community had no idea what to do," he says. "You're talking about the most unusual period I've ever seen."

Maybe so, but Harvey's own research shows that individual investors allow their mood swings and fears to cut their investment earnings. Why pay an adviser big bucks to do the same?

Here are some thoughts about being contrarian.

-- It helps to watch values. Price-to-earnings ratios, price-to-book value ratios and the like are a good way to tell how fairly priced the market is. At the peak of the dot-com frenzy in 2000, the Nasdaq PE/ratio was around 200. Yikes! A more typical PE ratio for the Dow Jones industrial average is between 15 and 18; right now it's slightly above 14.

"When it gets up to 22 or 23 or 24, that means the market is overvalued as a whole," says Dreman. "Even for a company with tremendous promise, I would never pay much more than 20 or 25 times earnings."

-- It's probably not too late. Maybe those advisers tiptoeing into stocks now haven't completely missed the party, because valuations are nowhere near bubble-like levels. Dreman believes there are still bargains to be had in stocks and that we are in for a long bull. "We're closer to 'the world is coming to an end' extreme than the overvalued extreme," he says. "The Standard and Poor's 500 stock index is selling around 13 times earnings right now; that's well below average."

-- Avoid hyperbolic advisers. A real red light is an adviser who tells you that "this time it's different" or "stocks will never be what they were before" or "this one's going through the roof."

-- Avoid advisers who won't challenge you. If you go to an adviser and say you're scared, or excited, or ambitious, and she pulls out a product just for that situation, that's probably not going to be a great fit. A really good adviser takes in all of your concerns and then figures out what's best for you long term, given your financial situation and the economic situation. She doesn't just sell to your moods.

-- Don't try to catch every wave. Contrarian investing is a long-term approach, but not one that you can be on top of every minute. If a stock that you really like falls, and you're on top of the reasons why, you may be able to pick up a bargain. But if the market is experiencing high volatility and seems to be getting whipsawed by rapid automated trading, you can get burned buying or selling. By the time you enter your trade, the price may have moved beyond your target and you'll end up buying too high or selling too low.

-- Listen to your adviser. Ask a lot of questions about his investment philosophy. Find out where he was putting money in 2009 and 2010 and 2011. If he didn't do anything you couldn't have done on your own, then maybe you don't need the help.

(The Stern Advice column appears weekly, and at additional times as warranted. Linda Stern can be reached at linda.stern@thomsonreuters.com; She tweets at http://www.twitter.com/lindastern; Read more of her work at http://blogs.reuters.com/linda-stern; Editing by Steve Orlofsky)

(Cohttp://finance.yahoo.com/news/stern-advice-advisers-crowd-131950090.htmlrrects spelling to Dreman (from Dremen) in paragraphs 6-8, 12-13)