1/ Jeremy Grantham: "There's always been two major approaches to managing money: (1) deduce what the market thinks and look for unappreciated changes, good and bad and bet against the market. And bet your analysis has picked things up that the marketplace has missed."
2/ "(2) use contrarian indicators like price to book, PE, price to cash fow, price to [find assets] that the market loved so much that it was constantly overpaying a litle bit and underpaying for those nasty cyclicals."
3/ "Historical aversion to cheap stocks disappeared because they acquired the reputaton for having won. The quants understood these were factors that worked. And indeed academics wrote it up and got a lot of credit for it. And anyway, that was the past."
4/ "[The business now is] stock by stock analysis that's not only labor intensive but risk intensive because you have to bet that things will change and you have to bet that the market is wrong. And that gives a lot of people, not surprisingly, a lot of trouble." Jeremy Grantham
5/ What surprised me about this interview that I listened to on a evening walk was Grantham's multiple references to P/E ratios. Stocks using method (2) are valued over the long term based on discounted cash flows not earnings. investorfieldguide.com/wp-content/upl…
6/ The work associated with a bottoms up analysis of an individual business (method 2) has always appealed to me. If you love creating statistical models I can see how method 1) might be interesting. It seems like 1) is easier for other quants to discover enough so it disappears.
7/ Grantham is essentially arguing that 1) doesn't work for him any more because the market "wised up" and the arbitrages disappeared. If I couldn't use method 2) I would find something else to do. A qualitative analysis where precise formulas don't work is interesting for me.
8/ Jeremy Grantham:
"Forget the four most dangerous words. The five most dangerous words are "this tme is never diferent'." Because occasionally something really important happens that is diferent. The Coronavirus is one of them." investorfieldguide.com/jeremy-grantha…
"Forget the four most dangerous words. The five most dangerous words are "this tme is never diferent'." Because occasionally something really important happens that is diferent. The Coronavirus is one of them." investorfieldguide.com/jeremy-grantha…
