"Your Grandchildren Have No Value"
from the Guradian UK:
John Elkington focuses on the thinking of financial analyst Jeremy Grantham as he warns that investors ignore the long-term at their descendants peril
Most business people who struggle to get their brains around long-term sustainability find it easier to grasp if they think about their children or grandchildren. Indeed, several CEOs I have worked with have pointed to their children as a key reason why they switched on to the agenda, one or two because they were beaten up (verbally, they say) at the family breakfast table. But the capitalist system thinks otherwise. In fact my title is a direct quote from a hard-hitting quarterly investor letter released a few days ago by financial analyst Jeremy Grantham. His message is that if we proceed on current capitalist lines, "the planet's goose is cooked."
For those who haven't come across Grantham, and I covered an earlier letter in this series last year, he is perhaps the most interesting financial analyst worldwide. He was a co-founder of GMO back in 1977, a firm that now employs more than 500 people and at the end of last year managed $97bn in client assets. Grantham is known for his trenchant views on long-term "value" investing. The idea: whatever the market may say, there are fundamental valuations of businesses that are ignored at the investor's peril.
If you want to make long-term returns, he says, remember that "all bubbles burst, all investment frenzies pass away. You absolutely must ignore the vested interests of the [financial] industry and the inevitable cheerleaders who will assure you that this time it's a new high plateau or a permanently high level of productivity, even if that view comes from the Federal Reserve itself." Then he corrects himself, adding: "No. Make that especially if it comes from there."
The point is that "the market is gloriously inefficient and wanders far from fair price but eventually, after breaking your heart and your patience (and, for professionals, those of their clients too), it will go back to fair value. Your task," he advises would-be long-term investors, "is to survive until that happens." GMO assumes that whatever the market thinks today, "profit margins and price earnings ratios will move back to the long-term average in seven years."
Read on ...
