There was a lot of discussion about value and assets being priced appropriately to offer the right type of reward for the risk taken. This lead to a point that I have made before which is that stocks might be cheaper than bonds at any given moment (or vice versa) but that does not have to mean that stock are themselves cheap and must be bought. There is very little in the way of fixed income that they like but there are some segments of the equity that think are promising.
There was space devoted to their preference to high quality domestic stocks but there was no definition or examples given. They did discuss the fact that GMO's idea of high quality have generally lagged the broad market with a couple of exceptions for many years. This lead to comments about patience in investing.Patience is an important concept but so too is another idea I've talked about before in the context of wanting to own stocks with many different attributes which is that cheap stocks can stay cheap for many years. There is nothing that says a cheap stock ever has to realize its potential. Of course it very well could but the idea that it definitely will, can be wrong. Sometimes expensive stocks do very well.
GMO seems to be intrigued with the equity market possibilities of Japan, Greece and Ireland. Their reasons for Japan were mostly the same reasons that people have been calling "this year" to be the year for Japan for a long time now. They of course could be correct but the debt dynamics and demographics stink. As I read this part of the interview the thing that occurred to me is that not every single segment that goes down a lot becomes a compelling buy.
Inker's comments about their thoughts about debt seemed to almost contradict what he said about equities. They like debt from Australia and New Zealand (me too) because these are the only two countries, as they see it, that can pay a yield 2% above inflation and be capable of paying their debt. So they are willing to go where the fundamentals stink for equities to find value but not so with debt? I'm not sure if that is correct that is the impression given in the interview.
One last point was about timber land as an asset which the firm is big on. Inker does warn that exchange traded vehicles, like timber REITs, are not the same thing as buying actual timber land.
Obviously the firm's track record is fantastic but they take a longer term view. Per Morningstar the fund (which may not be the best proxy for their management) has lagged its benchmarks for the last one and two years. For three years and longer it has outperformed meaningfully and is above its 2007 highwater mark.
In all the times I've read anything about them there are things that are useful and things that are not. They can be great at what they do without having to agree with every last thing they say and do.
The picture is from Cleetwood Cove Trail at Crater Lake.
9 comments:
I also have a lot of cash. markets seem over valued. Have many foreign markets already peaked?
I could be wrong but I see a correction of some magnitude coming. The problem is the market could become more overvalued this year.
The market has and can be overvalued for an extended period.
The markets will remain overvalued for the duration of the Fed liquidity cycle, notwithstanding the fact that, as I understand it, the Fed only prints monetary base (really reserves), and those reserves are staying on deposit with the Fed and are not used to purchase equities, nor to lend to credit worthy businesses. Someone please correct me if that is wrong.
Happy New Year to everyone!
Mark from L-Ville
Roger,
Here is an idea about "process of investing".
Why not invest in things that are priced cheaper today than what you can sell them for tomorrow.
That makes "investing" much easier then speculating on alphas, betas, and other pseudo-science financial advisor scams.
I disagree.
The liquidity cycle is VERY positive for the markets and will help prop the market up. The market may go up for a while. But this liquidity bubble could pop earlier than you or the fed thinks. There will be severe consequences to excessive money printing. Timing the start of the problems is not simple. It is not so simple as watching the fed announcing turning on and off the money faucet. I wish it were.
15.6% for 2010
Simply did not get the usual boost from heavy foreign investment. Foreign was actually a drag, but hard to say how much without a lot of laborious detailed accounting which really would not change the fact it was a drag.
Probably why we all need to diversify.
9:46,
As you finally say something that resembles a comment, your statement is so embedded with assumptions and fallacies as to be beyond peculiar as all of your other comments are for someone who reads this site religiously and leaves useless comments so frequently.
What says anything priced today that might be cheap won't get much cheaper tomorrow and stay cheaper forever. Just because you believe something is cheap doesn't mean it is cheap and doesn't mean the market will ever agree with your assessment.
Whether you have any use for words like alpha and beta they are embedded into every portfolio whether the end user realizes it or not or whether the end user cares about the words or not.
The assumption embedded in your comment that the market must realize something is cheap is naive to the point of being ignorant.
Right now there aren't any sectors or regions that look particularly 'cheap' to me but I am still making some good individual finds in sectors and regions almost everywhere; e.g., found some more first-class Muni's that were trashed in the general bond exodus.
Mark from L-Ville, you're close but the Fed only loans to banks. These have reserves and minimal reserve requirements to meet too, the Fed has a balance sheet.
The Fed can buy and sell assets through Open Market Operations to tune monetary demand and, when bought, these will be added to its balance sheet.
Traditionally it only buys US Treasuries to help regulate interest rates -- this is the limited form of QE and is nothing unusual -- but what has been confounding and difficult to analyze has been an expanded QE where the Fed is buying a wide range of assets including equities or IMHO potentially worthless assets such as CLO's. These are being stashed in separate 'vehicles' so they don't appear on the Fed's balance sheet which makes influence on asset demand d*mn near impossible to adduce, at least for this 'ol country boy.
Hmmm, probably didn't make it clear in the above that it's the banks that have cut back lending, mostly using low-cost Fed funds to rebuild their own balance sheets. Take a look at line 10 of the H.8 Fed release at http://tinyurl.com/262yjop for example: Bank loans were up almost 18.8% in 2007 and down -18.6% in 2009; pretty dramatic.
Made for some excellent opportunities for BDC's and similar non-commercial banking operations but that's beginning to change now.
I thought common wisdom these days is that "gold is cheap."
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