Monday, July 27, 2009

Jeremy Grantham's Latest Letter

Here's some excerpts from the July letter. Always a good read.

"As value purists (at least most of the time), we were very constrained by the fact that we still measured U.S. quality blue chips as the highest return global equities even at the very low. This was in complete contrast to the situation at the low in 2002, where the best values were in risky emerging markets and small caps..." - Jeremy Grantham

"The easy winner of the cheapest equity sub-category contest is still high quality U.S. blue chips. They were really trashed on a relative basis by the second quarter rally in junk." - Jeremy Grantham

"Without an unexpectedly strong improvement in the economy, it is hard to see high quality stocks losing much more ground, given their extreme value gap over junky stocks – more than an 11 percentage point spread per year on our seven-year forecast!" - Jeremy Grantham

Grantham admits "high quality" is subjective but that they've been estimating this way for 30 years and have a good record with it.

So U.S. high quality stocks seem rather inexpensive relative to other asset classes. This was not true roughly a decade ago.


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