Sunday, April 26, 2009

Jeremy Grantham

If you've never read Jeremy Grantham before...check out his 4th quarter letter. Great stuff that's full of insights.

Grantham previously called the 2003-2007 period "the biggest sucker rally in history". Most think of him as a perma-bear because he has seen stocks as being overvalued since the late 1990's.

Like Buffett, many said he did not "get it" back in then.

Recently, he's turned relatively bullish (for him) on stocks for the first time in over a decade.

By the way, that "suckers rally" delayed the chance to buy stocks (with a reasonable margin of safety) for over five years. The general over-valuation of stocks for the past decade meant that most passive investors were(via 401k, IRA etc) systematically overpaying for equities. Stocks may still go down (I have no idea) from here but, at least, many are selling near or even below fair value for the first time since the early 1990's. In the long run stocks will track growth in intrinsic value. We are at least close to being back on the trend line.

Unfortunately, I'm guessing many who should be buying now will avoid the market after the experience of the past decade. In 1999, most people felt pretty good owning stocks at the worst possible time to buy. It's called the tech bubble for good reason but at the time, GE and Coke were selling at valuations north of 50x normalized earnings. So the over-valuations were not isolated to technology by any means. Today companies like GE and Coke sell at more like 12-14x.

So unlike 1999 it feels pretty terrible to own equities...we'll see if that means some money can be made over the next decade.

I'm looking forward to Grantham's 1Q letter.

Adam

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