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Feb 26

Jeremy Grantham’s latest Must-Read

Jeremy Grantham’s latest quarterly newsletter is on the GMO website and as usual it is an educational, pragmatic and brilliant read. There is so much to take away from this one. There are three parts to his ‘longest quarterly letter ever’…

1. Investment advice from your Uncle Polonius

…which contains 10 absolute must read points. One of my many favourite bits …

To be at all effective investing as an individual, it is utterly imperative that you know your limitations as well as your strengths and weaknesses. If you can be patient and ignore the crowd, you will likely win. But to imagine you can, and to then adopt a flawed approach that allows you to be seduced or intimidated by the crowd into jumping in late or getting out early is to guarantee a pure disaster. You must know your pain and patience thresholds accurately and not play over your head. If you cannot resist temptation, you absolutely MUST NOT manage your own money.

2. Your Grandchildren have no value

part of his conclusion in this different perspective is…

Capitalism, by ignoring the finite nature of resources and by neglecting the long-term well-being of the planet and its potentially crucial biodiversity, threatens our existence. Fifty and one-hundred-year horizons are important despite the “tyranny of the discount rate,” and grandchildren do have value.

3. Investment Observations of the New Year

He provides his market outlook for short, medium and long-term and I won’t spoil what his specific calls are other than he is bullish, bearish and fair value…but not in the same order…sorry about that

Jeremy Grantham is undoubtedly one of the deepest thinkers in the investment world and his quarterly letter is a must read for anyone who wants to better understand the potential impacts of the major issues of our world on investment markets. I know its a long read, although at 15 pages its not really long as you’ll get more out of this than virtually any book you’re likely to find on investing.

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1 comment

  1. BB

    I read this one this morning, one of his better letters I think. The small section on “European Complexity” is a standout for me. It echos and articulates my thoughts perfectly and its refreshing to see an industry participant take a step back from complex analysis (based on common ideology) and make a simple educated observation

    “When I read the 120 contradictory bits of advice in the Financial Times alone, I find myself asking the question: who is an expert?”

    “probable experts are much more worried than the general market. This fact is giving rise to a new, tentative but definitely uncomfortable theory: perhaps the default assumption when dealing with ignorance or lack of confidence and skill is to assume everything will muddle through okay.”

    This “muddle through” theory continues to perplex me. Why is is that the market so readily adopts such a theory despite the fact that (as far as I am aware) no historical precedent exists to suggest that such an outcomes is likely? When has the global environment faced the combination of political, social and potentially systemic financial risks and managed to simply muddle through? (given that muddle through seems to be defined as a period in which things arn’t overly good but arn’t all that bad, presumably culminating in the beginning of the next bull market, with ever rising standards of living for all). I guess another simple observation would be to acknowledge that the market readily accepts baseless theories all the time, and we know what role the ‘experts’ have to play in that.

    Known unknowns remain scary prospects and reassurances by the sea of “experts” whom have failed to prove themselves worthy of that title in the past is of little comfort. This is especially so when others more worthy of such a title are willing to admit they don’t understand the end game here nor do they feel it will ‘muddle’ towards the side of positive outcomes.

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