Jeremy Grantham’s Bubble Predictions

Reaper

itwasntme001 said:

Value may not be that cheap in itself but owning more of it and less of growth could mean you suffer less of a drawdown.  

That's my thought. As a rule value stocks tend to outperform in a downturn. Though it's tough to take money out of funds shooting up in price and put it in funds that have done little for decades. I think I might start a slow transfer as I think this bull market still has a bit further to go.

Incidentally I suspect the current soaring crypto currencies are a symptom of current market over exuberance. If the markets crash I fully expect them to crash too, unlike traditional commodities which are defensive.

ChilliBob

Thanks for the replies guys and the comments about value investing. This is really interesting to read and learn more
I have opened and skimmed the GMO article, I'll give it a decent read tonight. 

Prism

itwasntme001 said:

Reaper said:

The bubble prediction does worry me because it rings true. On 1st May 2020 Elon Musk said on Twitter "Tesla stock price is too high imo"

Today it is 5 times higher.

Logic has gone out of the window but the question is how to reposition. Value investing (i.e. buying shares that look cheap today rather than ones that might be good value in the distant future) has had a miserable time in recent years but I'm wondering if now might be the time to have another look. There are long neglected value investing funds which might make a comeback.

I think there is a strong case for value returning back in fashion but it will take some time before it goes mainstream and the like of Fundsmith and SMT being replaced by whoever is the top performing value investor.  The trick is to get there early for outsized gains.

The easier option is to just stick with a global tracker and let the market adjust the weightings for you over time.  So if your portfolio has a lot of growth style funds, maybe move them to a global tracker so you become more neutral.

Value may not be that cheap in itself but owning more of it and less of growth could mean you suffer less of a drawdown.  We could be in an everything bubble and perhaps higher interest rates and inflation is the pin that pricks it.

I find it interesting that the SMT managers would claim to be value investors and probably so would most fund managers to a degree think that they have picked up a bargain.

Quite a few of the consumer staples stocks that are in funds like Fundsmith and LTGE are in the MCSI Value index. The biggest on the list is Johnson and Johnson which currently has a PE of 26.

I guess we need to see if the banks, energy companies and miners become popular again

itwasntme001

Prism said:

itwasntme001 said:

Reaper said:

The bubble prediction does worry me because it rings true. On 1st May 2020 Elon Musk said on Twitter "Tesla stock price is too high imo"

Today it is 5 times higher.

Logic has gone out of the window but the question is how to reposition. Value investing (i.e. buying shares that look cheap today rather than ones that might be good value in the distant future) has had a miserable time in recent years but I'm wondering if now might be the time to have another look. There are long neglected value investing funds which might make a comeback.

I think there is a strong case for value returning back in fashion but it will take some time before it goes mainstream and the like of Fundsmith and SMT being replaced by whoever is the top performing value investor.  The trick is to get there early for outsized gains.

The easier option is to just stick with a global tracker and let the market adjust the weightings for you over time.  So if your portfolio has a lot of growth style funds, maybe move them to a global tracker so you become more neutral.

Value may not be that cheap in itself but owning more of it and less of growth could mean you suffer less of a drawdown.  We could be in an everything bubble and perhaps higher interest rates and inflation is the pin that pricks it.

I find it interesting that the SMT managers would claim to be value investors and probably so would most fund managers to a degree think that they have picked up a bargain.

Quite a few of the consumer staples stocks that are in funds like Fundsmith and LTGE are in the MCSI Value index. The biggest on the list is Johnson and Johnson which currently has a PE of 26.

I guess we need to see if the banks, energy companies and miners become popular again

It is almost by definition that anyone who is a stock picker (for long term investing) is a value investor because he/she sees the current price being attractive relative to potential future value.

My comment was in the context of the value style which is perhaps more related to near term earnings vs price and tangible assets vs price and other factors.  It was certainly the fashionable style following the tech bubble bursting (and coincidently it was consumer staples that under performed during that same period - so I think it was more the cyclical value stocks that did well).  It shows that certain styles and sectors do well during certain periods and we don't really know when and for how long because a lot of the reason for certain things doing well is because the macro environment has or will be changing in combination with starting valuations.  But you can re-position when things go out of whack so maybe the ultra high octane growth style that SMT favours needs to be managed more carefully (since they are much more likely to fall 50% in a short time than a fundsmith).

Investing was never meant to be easy.

BrockStoker

I think it's good to invest (a small part) in assets that take a contrary view to your own. We can't always be right, so it's a good hedge if we are not. I take the view that growth tilted funds tend to outperform the majority of the time, so that is where most of my portfolio of fund is invested, but I also hold the Schroeder Recovery fund, and after a long time going nowhere/sideways it has all of a sudden come to life.

As mentioned, most sectors are cyclical, and if your portfolio is made up of different funds in different sectors that are not highly correlated, that means that at any one time some will be doing well, and others will be doing not so well. This "mismatch"  creates opportunities to re-balance by taking profits from something which has done well, and putting them into something that has not been doing well. If that asset that has not done well due to the cyclical nature of it's underlying holdings then you are effectively buying more of something that is likely to start to out perform in the near future.

Now I must admit, I'm becoming a big fan of the "run your winners" philosophy, and that is basically the opposite of the re-balance philosophy, but when you also take into account cycles, I think the two philosophies can exist side by side, if applied correctly.

So with this in mind, I don't think it's a bad idea to hold around a handful of carefully chosen funds, while having one or two core tracker funds which are basically left alone. Ignore the talk about bubbles, and just hold some cash which is your effective defense against bubbles/crashes.

I also think that, while the underlying economics/politics is very complex, the solution is actually very simple and straight forward at it's heart. All you need is a simple plan (keeping it simple is key) and to stick with it. Mine is basically "hold cash, buy low (when there are opportunities), and sell high". The only moderately complex part is deciding what to buy - "when" is easy as you simply buy the dip.

My advice therefore is: Buy your core tracker/trackers ASAP. In the mean time research, and have your cash ready and waiting for the opportunities. Buy in small chunks. 10-20K is fine. That way you can "drip" into the market and take advantage of any dips, lessening your chances of buying at the top. A balance needs to be struck between buying too high and time in the market, which is important.

Thrugelmir

itwasntme001 said:

Prism said:

itwasntme001 said:

Reaper said:

The bubble prediction does worry me because it rings true. On 1st May 2020 Elon Musk said on Twitter "Tesla stock price is too high imo"

Today it is 5 times higher.

Logic has gone out of the window but the question is how to reposition. Value investing (i.e. buying shares that look cheap today rather than ones that might be good value in the distant future) has had a miserable time in recent years but I'm wondering if now might be the time to have another look. There are long neglected value investing funds which might make a comeback.

I think there is a strong case for value returning back in fashion but it will take some time before it goes mainstream and the like of Fundsmith and SMT being replaced by whoever is the top performing value investor.  The trick is to get there early for outsized gains.

The easier option is to just stick with a global tracker and let the market adjust the weightings for you over time.  So if your portfolio has a lot of growth style funds, maybe move them to a global tracker so you become more neutral.

Value may not be that cheap in itself but owning more of it and less of growth could mean you suffer less of a drawdown.  We could be in an everything bubble and perhaps higher interest rates and inflation is the pin that pricks it.

I find it interesting that the SMT managers would claim to be value investors and probably so would most fund managers to a degree think that they have picked up a bargain.

Quite a few of the consumer staples stocks that are in funds like Fundsmith and LTGE are in the MCSI Value index. The biggest on the list is Johnson and Johnson which currently has a PE of 26.

I guess we need to see if the banks, energy companies and miners become popular again

It is almost by definition that anyone who is a stock picker (for long term investing) is a value investor because he/she sees the current price being attractive relative to potential future value.

Quality is a style as well. Solid companies need not be the best short term performers. Just consistantly profitable, well managed etc. Some shares rise quietly and incrementally. 

theGrinch

ChilliBob said:

Ha ha that's Bentham, I went to UCL. 

Haha ops. Genuine mistake

Prism

itwasntme001 said:
 It was certainly the fashionable style following the tech bubble bursting (and coincidently it was consumer staples that under performed during that same period - so I think it was more the cyclical value stocks that did well).  It shows that certain styles and sectors do well during certain periods and we don't really know when and for how long because a lot of the reason for certain things doing well is because the macro environment has or will be changing in combination with starting valuations.  But you can re-position when things go out of whack so maybe the ultra high octane growth style that SMT favours needs to be managed more carefully (since they are much more likely to fall 50% in a short time than a fundsmith).

Investing was never meant to be easy.

I hear that consumer stocks did poorly after the tech bubble but actually they seemed to do very well, mainly because at that time they were the value stocks. This is the time that Woodford made all of his great returns by moving into them in the late 90s as everyone was piling into tech. Morgan Stanley Global Franchise handily beat the world index.

I wonder if we are starting to see some of that again as consumer brand stocks have been trailing for several years now. Unilever hasn't gone anywhere for over 3 years, the Tobacco companies are mostly down, Nestle is up a bit but only about 6% per year. 

itwasntme001

Prism said:

itwasntme001 said:
 It was certainly the fashionable style following the tech bubble bursting (and coincidently it was consumer staples that under performed during that same period - so I think it was more the cyclical value stocks that did well).  It shows that certain styles and sectors do well during certain periods and we don't really know when and for how long because a lot of the reason for certain things doing well is because the macro environment has or will be changing in combination with starting valuations.  But you can re-position when things go out of whack so maybe the ultra high octane growth style that SMT favours needs to be managed more carefully (since they are much more likely to fall 50% in a short time than a fundsmith).

Investing was never meant to be easy.

I hear that consumer stocks did poorly after the tech bubble but actually they seemed to do very well, mainly because at that time they were the value stocks. This is the time that Woodford made all of his great returns by moving into them in the late 90s as everyone was piling into tech. Morgan Stanley Global Franchise handily beat the world index.

I wonder if we are starting to see some of that again as consumer brand stocks have been trailing for several years now. Unilever hasn't gone anywhere for over 3 years, the Tobacco companies are mostly down, Nestle is up a bit but only about 6% per year. 

Yeh i agree and you may well be right.  It is a reason I haven't sold any of my Fundsmith and LT.  I think they can still do well compared to a global tracker, especially risk adjusted.  I have sold some of the high growth stuff like SMT and my initial investment of a stock which has gone up 7-8x, its just became too much of a weight for my portfolio.

But at some point I think even quality will start to under-perform for a long stretch of time.  It's just that I find it hard that a global tracker will do much better, especially risk adjusted.

[Deleted User]

"Grantham's investment philosophy can be summarised by his commonly used phrase "reversion to the mean." Essentially, he believes that all asset classes and markets will revert to mean historical levels from highs and lows."

So basically, Grantham has been sitting out the dance for a long time. Or, to be more accurate, telling you to sit it out.
Treated like seers when their predictions eventually come good, it's a shame these figures are never held to account for the opportunity cost of their caution for the rest of the time.