Monday, December 16, 2013

Grantham: "No asset (or strategy) is so good that it can it be purchased irrespective of the price paid."

GMO forecasts negative returns for U.S. value and U.S. small caps over the next seven years, based on multiple and profit margin contraction [pdf].

"The latest deity (and one close to our hearts at GMO) admitted to the smart beta pantheon appears to be Quality. ETFs are being launched and papers written about the 'magic' of high quality businesses. Let us be clear that there is no magic to owning quality. There are only two interesting features about 'quality.' The first is of interest to economists, and that is that oligopoly appears to be a common industrial structure, as evidenced by the very slow mean reversion of the profitability of quality stocks. It is ironic that the outcome of the competitive process so beloved by most economists is not their heaven of perfect competition (with its infinite number of price-taking firms), but rather something more akin to imperfect competition."

1 comment:

Anonymous said...

This is written by Montier, not Grantham.