Tuesday, May 24, 2011

James Grant: Wry Observations About Investor Self-Delusion

"Progress is cumulative in science and engineering, but cyclical in finance." - James Grant in Money of the Mind

That quote by Grant back reminds me, to some extent, of this one by John Kenneth Galbraith from his bookA Short History of Financial Euphoria:

"The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version." - John Kenneth Galbraith

A variation of Grant's quote was also cited by Seth Klarman in an interview last year with Jason Zweig.

That interview with Klarman can be found here.

Grant's stuff is frequently thoughtful and useful for historical perspective (and yes...entertaining at times) even if you happen disagree on some things. Here are some excerpts from a recent interview with Grant:

On asset prices
"When you're not getting anything on your savings, you are inclined to go out and buy something, anything, to generate either income or the expectation of capital gains. So the things that we take as prices freely determined are in fact manipulated."

On stock valuations
"Some big multinationals left behind in the past ten years (like) Wal-Mart (WMT), Cisco Systems (CSCO), Johnson & Johnson (JNJ) appear to be attractively priced. But generally speaking, things are rich."

On what, if in Bernanke's shoes during the crisis, he'd have done
"Resign. I don't know. I have great faith in the price mechanism, in the mechanics of markets. I think there should have been much less intervention and we should have let some chips fall, many chips fall."

On gold
"Gold is a very difficult investment because its value is indeterminate. It is the reciprocal of the world's confidence in the likes of Ben Bernanke. I think the price will go higher."

Jim Grant is certainly one of the better financial historians out there (though not necessarily known for picking specific stocks).

He's often full of insights and always worth a listen.

Adam

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