I guess he’s been spilling his guts on CNBC. But CNBC has become impossible to link or view without a paid subscription. (Interview referenced was in late September)
Here’s a decent article
summarizing Grantham’s comments.
Here’s a 10-minute discussion / analysis based on a few clips from the CNBC interview. The presenter is decent - but clearly promoting his internet based investor service,.
My advice would be to exercise due diligence and look at your holdings one by one. I’m mostly a bottom feeder, so tend to own things that are pretty beaten up and out of favor. The biggest exception I could find is my commodities fund, BRCAX, up 32% for one year. However, looking back 5 and 10 years the fund has only garnered single digit returns. And, as @BenWP
will testify, my single largest holding, TMSRX, appears to be anything but a euphoric bubble.
Bonds are a bit troubling. Not sure what kind of duration my allocation funds have, but my direct bond fund holdings are intermediate term (generally 2-5 years). My issue here with Grantham (and other experts) is that I think if equities hit the bricks, the economy will grind to a near halt and intermediate / long bonds will rise in value - albeit for a brief period. But - might be wrong.
However, I agree with most of what Grantham says and respect his knowledge. For defense, I’ve been looking at various defensive funds. None is a “panacea”. All are problematic in some way - - perhaps the reason he stresses cash for defense.
Grantham’s emphasis on non - U.S. equities is intriguing. Purely by chance the only 3 stocks I hold are RIO (Australia) NGLOY (Great Britain) WPM (Canada). All relatively cheap when acquired.
Grantham has been doing this so long there are now reality checks for those predictions. I found this one from 2018 where on Dec. 31, 2010 this 7 year prediction was made. Below, prediction and actual 7 years later.
2010 prediction... 2018 actual
US LC predicted +0.4%... actual was +12%
US SC predicted -1.9%... actual was +10%
Int LC predicted +2.1%... actual was +5%
Int SC predicted -1.4%... actual was +4%
EM predicted 4.1%... actual was 0%
Not sure what to make of it but this obviously smart man has had trouble with his predictions in the past. Why adjust based on future predictions? Yeah, we may be in a value bubble and a bear market is always on the horizon somewhere down the road, but sounds like his algorithms were saying the same thing in 2010. Remember, his predications have to not only predict the global equity markets, but also the rate of inflation. Impossible task maybe? But A+ for the effort.
Thanks for those stats. I realize he’s been early / wrong / or whatever for quite a while.
To dump some fuel on the fire here, the new EV truck maker, Rivian, that went public about a week ago now has a market cap greater than that of either GM or Ford. I don’t think they’ve sold a single production model yet, although Amazon (who has a stake in the company) has ordered 100,000. Nuts!
(At least Mike’s wearing a helmet in case everything goes to hell …)
Above chart reproduced here too.
I find some of Juggling Dynamite's stuff well worth getting
Sadly when the Bear strikes, everyone goes 'oh, they were right!' while forgetting they were early/wrong for many many years.
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Yeah - Hussman’s a perma-bear. Somehow think Grantham’s a little sharper. GMO must have some good supporting talent & research capability. A bit more here than just some old man crying wolf. Hope he’s wrong. I’d like everybody to be rich, and making money has been easy for many years now.
March 2009 is when things started to move. Dow has climbed from around 6,000 than to over 36,000 of recent. Just 2 or 3 brief hiccups along the way. The thing some of us who survived ‘07-‘09 might think about is whether at 15 years additional age we’d be willing / able to ride out a storm like that again - possibly something worse. Not a prediction. Just something I thought might add some balance to the general euphorism here.
@Old_Joe / A nickel for your subscription is in the mail. Am confident I’ll get my money’s worth.
It all depends on what you need the money for. People who are depending on the market going up to pay their bills are in a dangerous place, I think.
The valuations and the placidity are both concerning. Both are the Feds fault. When they step back, we may go back to the “good ol days” with 2 to 3% moves etc.
But what tools do they have to stop a 45% drop. I still dont understand why they feel it is their responsibility to fix it.
If he is not listed as manager, it's difficult to know what exactly he owns from public disclosures.
“This is going on as far as the eye can see. It’s an unfair advantage for green investing, Grantham said.
There may be a bubble that will affect this for a year or two, but it will come back bigger and better than other groups because of this tailwind. This is going to be the most important investment theme for the rest of your life.”
"To exploit this green boom, Grantham is making risky bets.
Venture capital and other private investments now compose more than three-quarters of the $1.4 billion in assets he manages across a foundation, a charitable trust and his personal holdings."
"Grantham says his venture-capital portfolio has returned 19% annually over the past decade, including a 102% jump in 2020, a 'watershed' year."
A legitimate point. But I don’t invest according to my own predictions either. Does anyone?
Prediction does not = certainty. So some humility as investors is appropriate. What I attempt to do is tilt things in the direction I think will reduce overall portfolio risk while achieving best hoped for results under varying market environments. Not a perfect science. And beyond the scope of this discussion - except that philosophically it might help understand Grantham’s seeming hypocrisy. What may not be apparent in the list of Grantham’s investments (linked below) are derivatives he may have employed which are designed to offset losses in down markets.
One thing that set me to thinking about all this was Dodge and Cox’s revelation in a recent portfolio report (for DODBX) that they hold a 5% short position in the S&P, which they think highly overvalued, while continuing to invest in the stocks they find attractive. Quite an unusual step for this very conservative house.
And this from T.Rowe Price’s May 31 Annual Report for their Spectrum Allocation funds …
“As we look ahead, the central question for investors—assuming the economy’s recovery from the pandemic continues apace—is whether the returns on financial assets will be as robust. Valuations are elevated in nearly all asset classes, and in some areas, there are clear signs of speculation. It is not an easy environment to invest in, but our investment teams remain rooted in company fundamentals and focused on the long term, and they will continue to apply strong fundamental analysis as they seek out the best investments for your portfolio.” https://prospectus-express.broadridge.com/summary.asp?doctype=ann&clientid=trowepll&fundid=77957L302
Note: The above was written 6 months ago. Can we say valuations are better now than they were than? And the “signs of speculation” less apparent?
Grantham’s Top Investments
I and everybody I personally know invest based on our view of the future - I.e., personal predictions - and within the limitations life imposes on us. Agree that prediction in this context is not the same as certainty of outcome.
I have followed Grantham's various public pronouncements about equity returns for the past 10 years. A few years after one such pronouncements, his firm's then deputy CIO (Ben Inker?) was asked in a Morningstar interview why their funds did not reflect those pronouncements and he came clean saying that they never got around to investing in line with those pronouncements. Lucky for their fund shareholders.
The linked article in the OP includes the following: "Our forecast is to have a negative return on US stocks over the next seven years. I strongly believe that will be accurate." [Bold added] He may turn out to be correct about negative returns for SPY or VTI from now until October 2028 (7 years?) but not IMO because of currently known facts. I am invested in SPY and am not reducing it based on the quoted statements but I will understand if somebody at MFO wants to reduce or even liquidate their SPY or other US equity holdings based on those statements.
Nobody should take the above personally. No offense is intended.
Grantham may be exercising a time honored persuasive technique.
Finally, I respect money managers’ skills, even those whose ways of marketing I do not agree with, Grantham included. One just hopes one never comes across a Madoff or his variants.
Good luck to all of us in our effort to fine tune our BS radar.
Wishing you all healthy investing!
GMO's largest equity fund, GQETX, and probably has more than 50% of all their equity AUM.