Don't Be an Idiot..Buy Stocks!

daryll40 · Post by **daryll40** » Mon Oct 27, 2008 7:37 pm

No, I am not calling any of you names. But Jeremy Grantham is! From a BLOOMBERG story:

http://www.bloomberg.com/apps/news?pid= ... refer=home

Quote:Grantham, who oversees $126 billion as chairman of Boston- based Grantham, Mayo, Van Otterloo & Co., said U.S. stocks are cheap in his view for the first time in 20 years, and non-U.S. shares are even less costly. Known for a typically dour view on American equities, Grantham correctly predicted in July 2007 that a top investment bank would collapse because of losses linked to subprime mortgages.

Stocks are likely ``to set up a once-in-a-lifetime investing opportunity,'' Grantham, 70, wrote in a quarterly letter to investors. ``If stocks are attractive and you don't buy, you don't just look like an idiot, you are an idiot.''

gassert · Post by **gassert** » Mon Oct 27, 2008 7:43 pm

When a lifelong bear talks you probably should take note. Though we have probably finally run out the excesses of the last 20 years, I don't know that anything but "normal" long term growth should be expected.

daryll40 · Post by **daryll40** » Mon Oct 27, 2008 7:50 pm

My brother and I were just talking about "lifestyle bubble" that is bursting. The question is whether current stock prices already have that priced in. Hopefully Grantham, Baron and Buffett are right here.

On a related tangent, I have always avoided keeping up with the Joneses, but it will be nice to not have to explain myself for NOT doing so since they Jonese won't be living at least AS FAR beyond their means as previously.

bernsteinfan · Post by **bernsteinfan** » Mon Oct 27, 2008 8:14 pm

daryll40 wrote:Known for a typically dour view on American equities, Grantham correctly predicted in July 2007 that a top investment bank would collapse because of losses linked to subprime mortgages.

Even a broken clock is right twice a day (the analog variety, that is), but yes, I think now is a great time to buy. I only regret that I get paid more the first half of the year and I invested on the way down, but what can you do, I'm still (slightly) ahead after all these years.

woof755 · Post by **woof755** » Mon Oct 27, 2008 8:20 pm

daryll40 wrote:My brother and I were just talking about "lifestyle bubble" that is bursting. The question is whether current stock prices already have that priced in. Hopefully Grantham, Baron and Buffett are right here.

On a related tangent, I have always avoided keeping up with the Joneses, but it will be nice to not have to explain myself for NOT doing so since they Jonese won't be living at least AS FAR beyond their means as previously.

Who'da thought "keeping up with the Joneses" would lead to a race to foreclosure?

I'm glad I had a 9 year old Chevy Blazer in my driveway when I couldn't afford to replace it.

nisiprius · Post by **nisiprius** » Mon Oct 27, 2008 8:21 pm

OK, then, I'm an idiot.

Sticks and stones can break my bones but names can never hurt me.

And I resent emotional appeals cloaked in cleverly ambiguous rhetoric. The key here is "if stocks are attractive and you don't buy." What does the phrase "stocks are attractive" mean, exactly, (as opposed to "stocks look attractive" or "stocks seem attractive" or "Jeremy Grantham says stocks look attractive?")

Let's restate the proposition a bit:

a) "If stocks seem attractive and you don't buy, you don't just look like an idiot, you are an idiot."

b) "If Jeremy Grantham says stocks look attractive and you don't buy, you don't just look like an idiot, you are an idiot."

Suddenly it isn't quite as compelling is it?

isleep · Post by **isleep** » Mon Oct 27, 2008 8:35 pm

daryll40 wrote: On a related tangent, I have always avoided keeping up with the Joneses, but it will be nice to not have to explain myself for NOT doing so since they Jonese won't be living at least AS FAR beyond their means as previously.

For the past few years (while living frugally and socking away everything I could), I felt like I had somehow been transported to a crazy parallel universe where even low-income folks are driving Cadillac Escalades (complete with fancy rims and booming sound systems) and living in McMansions.

Never had the desire to join their ranks, but I did feel very out of place...

bob90245 · Post by **bob90245** » Mon Oct 27, 2008 8:37 pm

nisiprius wrote:And I resent emotional appeals cloaked in cleverly ambiguous rhetoric. The key here is "if stocks are attractive and you don't buy."

Yeah, kinda makes you think that Grantham isn't quite convinced that stocks are attractive yet.

I'll wait to buy until Grantham is more sure of himself and doesn't hold back his convictions with conditional "if" statements.

JoeMatye · Post by **JoeMatye** » Mon Oct 27, 2008 8:55 pm

Anyone who wants to understand Grantham's analysis of the current market situation should read his papers on his firm's web site: http://www.gmo.com.

Note in particular his observation that historically after bubbles burst, market declines on average overshoot fair value by up to 20%.

yseguy22 · Post by **yseguy22** » Tue Oct 28, 2008 12:33 am

when the dot com bubble was bursting, grantham was saying the same thing.

all the way down.

folks, I hear this same thing 100 times a week. it's not over til it's over.

the market still has another 5-10% down to go. you should be buying on the way down.

daryll40 · Post by **daryll40** » Tue Oct 28, 2008 4:50 am

isleep wrote: For the past few years (while living frugally and socking away everything I could), I felt like I had somehow been transported to a crazy parallel universe where even low-income folks are driving Cadillac Escalades (complete with fancy rims and booming sound systems) and living in McMansions.

Never had the desire to join their ranks, but I did feel very out of place...

Fabulous description of what was going on.

daryll40 · Post by **daryll40** » Tue Oct 28, 2008 4:50 am

yseguy22 wrote:when the dot com bubble was bursting, grantham was saying the same thing.

all the way down.

folks, I hear this same thing 100 times a week. it's not over til it's over.

the market still has another 5-10% down to go. you should be buying on the way down.

Is that true? He is saying here that he's been a bear for 20 years.

Kenkat · Post by **Kenkat** » Tue Oct 28, 2008 5:54 am

daryll40 wrote:
yseguy22 wrote:when the dot com bubble was bursting, grantham was saying the same thing.

all the way down.

folks, I hear this same thing 100 times a week. it's not over til it's over.

the market still has another 5-10% down to go. you should be buying on the way down.
Is that true? He is saying here that he's been a bear for 20 years.

I don't think that's true. I was reading Grantham back in 2000 and he was still pretty negative on US Growth; if I recall correctly, he thought overseas markets, emerging markets, value and REIT had better expected returns going forward. He was pretty accurate - I believe Ed Tower did a study on the relative accuracy of his predictions and show that as well.

Ken

daryll40 · Post by **daryll40** » Tue Oct 28, 2008 6:02 am

That is what I thought. That he's been consistent and more or less correct.

Certainly you don't buy on any guru's recommendation. But when you see folks like Jeremy and Warren screaming "buy", it gives a bit more confidence to stay the course.

Buckeye · Post by **Buckeye** » Tue Oct 28, 2008 6:19 am

Didn't Vanguard recently drop GMO as co-manager for several of its funds?

I assume for underperformance....though I'm not sure.

Anyways I agree this is a good time to buy for the long term. I see at least another 20% drop, but there is no way to when and for how long.

Rebalance and stay the course!

johnjtaylorus · Post by **johnjtaylorus** » Tue Oct 28, 2008 6:42 am

Adjusting for taxes and inflation, stocks are as cheap as they have been in your lifetime.

Whether they will get even cheaper...

YDNAL · Post by **YDNAL** » Tue Oct 28, 2008 6:58 am

daryll40 wrote:That is what I thought. That he's been consistent and more or less correct.

Certainly you don't buy on any guru's recommendation. But when you see folks like Jeremy and Warren screaming "buy", it gives a bit more confidence to stay the course.

daryll,

Of course, Jeremy and Warren are buying TSM and REITs.

Regards,
Landy

fundtalk · Post by **fundtalk** » Tue Oct 28, 2008 7:01 am

I think it is worth reading Grantham. Like it or not, he has been right over the last 15 years. It is completely incorrect to say that he was saying buy on the way down in 2002. The S&P 500 never reached his fair value estimate. If you don't believe me, sign in to GMO's website and you can access all his letters.

It is also worth reading what he is saying right now. Yes, his S&P 500 fair value estimate is 975. But, he also discusses that in previous bear markets that the market has overcorrected (he explains that profit margins and PE multiples both contract which has led to a 20-40% drop below fair value- he takes a little dig at Fama/French while explaining this). This leads to a predicted low in the 600-800 range--potentially a 30% drop from here. He also thinks that the bottoming process will likely drag out into 2010. Eventually, this will be a great buying opportunity, but it is going to take some patience.

nisiprius · Post by **nisiprius** » Tue Oct 28, 2008 7:08 am

johnjtaylorus wrote:Adjusting for taxes and inflation, stocks are as cheap as they have been in your lifetime.

Whether they will get even cheaper...

But are today's stocks fresh meat priced as a loss leader; a manager's special that's just at the pull date; or outdated grey slightly-off meat that's been reddened with CO and repackaged?

Rodc · Post by **Rodc** » Tue Oct 28, 2008 8:03 am

And I resent emotional appeals cloaked in cleverly ambiguous rhetoric. The key here is "if stocks are attractive and you don't buy." What does the phrase "stocks are attractive" mean, exactly, (as opposed to "stocks look attractive" or "stocks seem attractive" or "Jeremy Grantham says stocks look attractive?")

Perhaps even more to the point is the IF at the beginning.

It really reads to me:

If stocks are a bargain today, then stocks are a bargain today.

Well, yeah. :roll:

Kenkat · Post by **Kenkat** » Tue Oct 28, 2008 8:40 am

He told you in the previous sentence that it is likely a once in a lifetime buying opportunity.

It's kind of like saying "...record cold temperatures are forecast this weekend. If you don't buy a coat, it's your own fault" (I would not have used the word idiot because that is just tempting the market spirits to prove you wrong...)

Ken

tc101 · Post by **tc101** » Tue Oct 28, 2008 8:58 am

He is 70 years old. I started to see a slight mental decline in myself at age 50.

nisiprius · Post by **nisiprius** » Tue Oct 28, 2008 9:29 am

kenschmidt wrote:He told you in the previous sentence that it is likely a once in a lifetime buying opportunity.

It's kind of like saying "...record cold temperatures are forecast this weekend. If you don't buy a coat, it's your own fault" (I would not have used the word idiot because that is just tempting the market spirits to prove you wrong...)

Ken

Buying a coat is a less consequential decision than buying stocks. Unless you mean I ought to buy $44.95 or $95.00 or $249.00 worth of stocks.

And if I plunk down $249 for an Eddie Bauer First Ascent WeatherEdge® Down Parka, it's not going to lose 40% of its down in six months... and if it did, they guarantee it and they'd refund what I paid for it.

How about: "Snow is forecast this weekend. If you don't buy a Ford Explorer Eddie Bauer 4WD SUV today, it's your own fault?"

Heath · Post by **Heath** » Tue Oct 28, 2008 9:45 am

Those who wish to quote Grantham should go straight to the source. Of course neither Grantham nor anyone else knows what will happen in the market, but here is a direct quote,

But a reasonably conservative investor looking at the data would want to allow for at least a 20% overrun to, say, 800 on the S&P 500, and have a tiny portion of their brain loaded with the notion that it just might be quite a bit worse.

Kenkat · Post by **Kenkat** » Tue Oct 28, 2008 10:23 am

nisiprius wrote:
kenschmidt wrote:He told you in the previous sentence that it is likely a once in a lifetime buying opportunity.

It's kind of like saying "...record cold temperatures are forecast this weekend. If you don't buy a coat, it's your own fault" (I would not have used the word idiot because that is just tempting the market spirits to prove you wrong...)

Ken
Buying a coat is a less consequential decision than buying stocks. Unless you mean I ought to buy $44.95 or $95.00 or $249.00 worth of stocks.

And if I plunk down $249 for an Eddie Bauer First Ascent WeatherEdge® Down Parka, it's not going to lose 40% of its down in six months... and if it did, they guarantee it and they'd refund what I paid for it.

How about: "Snow is forecast this weekend. If you don't buy a Ford Explorer Eddie Bauer 4WD SUV today, it's your own fault?"

Well, of course, it was just an analogy, but I do like yours better. 8)

Hopefully the probability of stocks depreciating in value is lower than the Ford Explorer. Key word being hopefully the way things have been going... :undecided

Ken

YDNAL · Post by **YDNAL** » Tue Oct 28, 2008 10:37 am

kenschmidt wrote:It's kind of like saying "...record cold temperatures are forecast this weekend. If you don't buy a coat, it's your own fault" (I would not have used the word idiot because that is just tempting the market spirits to prove you wrong...)

nisiprius wrote:How about: "Snow is forecast this weekend. If you don't buy a Ford Explorer Eddie Bauer 4WD SUV today, it's your own fault?"

I like yours better ken.

You buy the coat that meets your budget. Suggesting a gas guzzler is irresponsible.

I rather buy snow tires for my Prius (48 mpg city), Mr. Nisi Prius, :lol: for the snow forecasted here in SE Florida.

Regards,
Landy

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