More by the Same Author
2013-02-15 Hyperinflations, Hysteria, and False Memories by James Montier of GMO
In the past, Ive admitted to macroeconomics being one of my dark, guilty pleasures. To some value investors this seems like heresy, as Marty Whitman1 once wrote, Graham and Dodd view macro factors...as crucial to the analysis of a corporate security. Value investors, however, believe that macro factors are irrelevant. I am clearly a Graham and Doddite on this measure (and most others as well).
2012-11-29 The 13th Labour of Hercules: Capital Preservation in the Age of Financial Repression by James Montier of GMO
James Montier, a member of GMO's asset allocation team, writes to institutional clients in a new white paper on the prospects for preserving and growing capital in a world of slowing growth. Defining financial repression loosely "as a policy that results in consistent negative real interest rates," Mr. Montier poses the question "how does a value investor respond to this? It certainly appears as if the assets one would normally associate with capital preservation are expensive. So can and/or should you substitute other assets such as equities into the role of safe-haven value store?"
2012-05-14 The Flaws of Finance by James Montier of GMO
Bad Models, or, Why We Need a Hippocratic Oath in Finance. The NRA is well-known for its slogan Guns dont kill people; people kill people. I have often heard fans of financial modelling use a similar line of defence. However, one of my favourite comedians has a rebuttal that I find most compelling. He points out that Guns dont kill people; people kill people, but so do monkeys if you give them guns. This is akin to my view of financial models. Give a monkey a value at risk (VaR) model or the capital asset pricing model (CAPM) and youve got a potential financial disaster on your hands.
2012-03-21 What Goes Up Must Come Down! by James Montier of GMO
Whilst we at GMO fret over evidence of the strained nature of profit margins, the ever bullish Wall Street analysts expect profit margins to continue to rise! Witness Exhibit 4. In our search for evidence of a structural break, this simple-minded extrapolation gives us some comfort because the Wall Street consensus has a pretty good record of being completely and utterly wrong.
2011-06-28 A Value Investor’s Perspective on Tail Risk Protection: An Ode to the Joy of Cash by James Montier of GMO
The range of tail risk protection products seems to be exploding. Investment banks are offering “solutions” to investors and fund management companies are launching “black swan” funds. There can be little doubt that tail risk protection is certainly an investment topic du jour. The very popularity of this alone should spell caution to investors. Effectively, you should seek to buy insurance when nobody wants it. An alternative way of phrasing this is to say that insurance (and that is exactly what tail risk protection is) is as much of a value proposition as any other element of investing.
2011-03-11 The Seven Immutable Laws of Investing by James Montier of GMO
This dearth of assets offering a margin of safety raises a conundrum for the asset allocation professional: what does one do when nothing is cheap? Personally, I’d seek to raise cash. This is obvious not for its uninspiring near-zero yield, but because it acts as dry powder – a store of value to deploy when the opportunity set offered by Mr. Market becomes more appealing. And this is likely, as long as the emotional pendulum of investors oscillates between the depths of despair and irrational exuberance as it always has done. Of course, the timing of these swings remains as nebulous as ever.
2010-02-26 Was It All Just A Bad Dream? Or, Ten Lessons Not Learnt by James Montier of GMO
Montier reflects on ten lessons the investment industry did not learn during the market declines of 2008 and 2009. He says that it is time to abandon the efficient market hypothesis and acknowledge the role the housing bubble played in the financial crisis. In addition, he notes that the principles of value investing still hold true: Buy when assets are cheap, and sell when they are expensive.
