10 INVESTMENT LESSONS FROM JEREMY GRANTHAM
Nice summary of a MarketWatch piece courtesy of Barry Ritholtz:
1. Believe in history
“All bubbles break; all investment frenzies pass. The market is gloriously inefficient and wanders far from fair price, but eventually, after breaking your heart and your patience … it will go back to fair value. Your task is to survive until that happens.”
2. ‘Neither a lender nor a borrower be’
“Leverage reduces the investor’s critical asset: patience. It encourages financial aggressiveness, recklessness and greed.”
3. Don’t put all of your treasure in one boat
“The more investments you have and the more different they are, the more likely you are to survive those critical periods when your big bets move against you.”
4. Be patient and focus on the long term
“Wait for the good cards this will be your margin of safety.”
5. Recognize your advantages over the professionals
“The individual is far better positioned to wait patiently for the right pitch while paying no regard to what others are doing.”
6. Try to contain natural optimism
“Optimism is a lousy investment strategy”
7. On rare occasions, try hard to be brave
“If the numbers tell you it’s a real outlier of a mispriced market, grit your teeth and go for it.”
8. Resist the crowd; cherish numbers only
“Ignore especially the short-term news. The ebb and flow of economic and political news is irrelevant. Do your own simple measurements of value or find a reliable source.”
9. In the end it’s quite simple. really
“[GMO] estimates are not about nuances or Ph.D.s. They are about ignoring the crowd, working out simple ratios and being patient.”
10. ‘This above all: To thine own self be true’
“It is utterly imperative that you know your limitations as well as your strengths and weaknesses. 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.”
This is good but I think it is no substitute for the real thing, i.e., the letter, which is titled the largest letter ever (in light of the previous one which was pretty short)
In the letter he has a rather interesting assessment of Europe. He says GMO is an authority in bubbles. He does not think the Euro crisis is a bubble (except for RE excesses in Spain, Ireland, Portugal?), so he concludes it is not their area of expertise. He says thre are a couple of experts he follows whose assessment of the situation is a lot gloomier than the “muddle thru” market view is. He concludes by saying that when one does not know something assumes all will be fine. That is kind of what GMO is doing. The Euro crisis is not factored at all in his return forecasts for Europe.
Now, CR here you have an interesting topic for discussion to which your smart readers can contribute. Is the European crisis a minor event compared to subprime. GS’ Jim O’Neill, in a recent Bloomberg radio interview bashes the people who worry about the Greek default, tells them that they” should go get a life”. That China produces the GDP equivalent of a new Greece every three months; europe will be fine!
Even though I don’t rout for bad outcomes, whatever is gonna happen is gonna happen despite my opinion. There is nothing I would love more than to see Jim O’Neill having to eat his words…
I think one this is a certainty – the Europe crisis will probably look like a minor event compared to the bursting of the China bubble…
@anon
you’re right. I was in China many times, I’m an avid reader of Pettis and Chauvanec. So I think it will happen but I don’t know when and in which manner. But China means commodities and just yesterday Chris Cook reiterated his view about the oil market. It also happen that an old friend on mine is a big fish at ENI. He told me many times that it’s totally false that we’re short of oil and the current high price is manipulated. He told me something about the production costs and it was hard to believe, they are much lower than most people think. The more I go deep the more it’s clear we’re on the verge of a huge deflationary schock.
http://www.nakedcapitalism.com/2012/02/chris-cook-the-oil-end-game.html
Nice.
5 is priceless advice. Add also that macro is probably best for individual investor (vs. professionals) … the playing field is a lot more level (w.r.t. to data access, market access/liquidity and the fact that their Harvard MBA analysts are taught the wrong things!).
Where is VII these days? You capitulate on your SPX short yet? I’d be crying uncle at this point if I were short…
Why will the Euro crisis be minor compared to the bursting of the China bubble?
-The Eurozone GDP still is larger than that of China.
-Chinese have far more equity in their homes than U.S. homeowners did when our housing bubble burst.