Jeremy Grantham is a wildly successful investment manager whose laser focus on the long term mean of the market is depressingly at odds with the short-view, crash-boom wave riders that have so far dominate 21st century American investment. By way of introduction, here is his a snippet of his April 2012 quarterly letter for Grantham Mayo van Otterloo (GMO), the $100 billion asset management firm he heads:
In the professional investment business we are all agents, managing other peoples’ money. The prime directive, as Keynes knew so well, is first and last to keep your job. To do this, he explained that you must never, ever be wrong on your own. To prevent this calamity, professional investors pay ruthless attention to what other investors in general are doing. The great majority “go with the flow,” either completely or partially. This creates herding, or momentum, which drives prices far above or far below fair price. There are many other inefficiencies in market pricing, but this is by far the largest.
To wit, Grantham recently gave an interview with the Wall Street Journal where he expressed his dissatisfaction with both the Fed's strategy of keeping interest rates low and the market's bubbling reaction to it:
like to get what I consider the central idea, which in the stock market is patience and value and mean reversion. And in society, it is resources and climate damage. That's plenty to go on, and that's a pretty strong focus. We have a shockingly short horizon in the stock market, as witnessed in the Internet bubble. And we have a shockingly short horizon about social problems, where all we want to hear is how rapid the growth will be and how good everything is.
Unlike the vast, vast majority of investment managers, Grantham has his eyes on the horizon and not on the fly an inch from his nose. When he worries, so should you.
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