Jeremy Grantham Quotes

[KinAlberta]

I've closely followed Jeremy Grantham since the 1990s and years ago I started the Jeremy Grantham page on Wikipedia, eventually adding some select quotes to it.

 

Now I see that that this board has periodically followed his writings and talks as well, I thought I'd create this thread to collect his insights in one place.

 

I'll start with one excerpt from one of his 2008/2009 letters:

 

To avoid the development of crises, you need a plentiful supply of foresight, imagination, and competence. A few quarters ago I likened our  financial system to an elaborate suspension bridge, hopefully built with some good, old-fashioned Victorian over-engineering. Well, it wasn’t over-engineered! It was  built to do just one under favorable conditions.  Now with hurricanes blowing, the Corps of Engineers, as it were, are working around the clock to prop up a suspiciously jerry-built edifice. When a crisis occurs, you need competence and courage to deal with it. The bitterest disappointment of this crisis has been how completely the build-up of the bubbles in asset prices and risk-taking was rationalized and ignored by the authorities, especially the formerly esteemed Chairman of the Fed.  …

 

 

"I ask myself, ‘Why is it that several dozen people saw this crisis coming for years?’ I described it as being like watching a train wreck in very slow motion. It seemed so inevitable and so merciless, and yet the bosses of Merrill Lynch and Citi and even [u.S. Treasury Secretary] Hank Paulson and [Fed Chairman Ben] Bernanke — none of them seemed to see it coming.  I have a theory that people who find themselves running major-league companies are real organization-management types who focus on what they are doing this quarter or this annual budget. They are somewhat impatient, and focused on the present. Seeing these things requires more people with a historical perspective who are more thoughtful and more right-brained — but we end up with an army of left-brained immediate doers. So it’s more or less guaranteed that every time we get an outlying, obscure event that has never happened before in history, they are always going to miss it. And the three or four-dozen-odd characters screaming about it are always going to be ignored….

 

The type of people who saw these problems unfolding, on the other hand, had much less career risk or none at all. We know literally dozens of these people. In fact, almost all the people who have good historical data and are thoughtful were giving us good advice, often for years  before the troubles arrived. They all have the patience of Job. They are also all right-brained: more intuitive, more given to developing odd theories, wallowing in historical data, and taking their time. They are almost universally interested – even obsessed – with outlier events, and unique, new, and different combinations of factors. These ruminations take up a good chunk of their time. Do such thoughts take more than a few seconds of time for the great CEOs who, to the man, missed everything that was new and different? Unfortunately for all of us, it was the new and different this time that just happened to be vital

 

So we kept putting organization people — people who can influence and persuade and cajole — into top jobs that once-in-a-blue-moon take great creativity and historical insight. But they don’t have those skills.”

 

My second theory would be even harder to prove, and thisis it: that CEOs are picked for their left-brain skills – focus, hard work, decisiveness, persuasiveness, political skills,and, if you are lucky, analytical skills and charisma. The“Great American Executives” are not picked for patience. Indeed, if they could even spell the word they would be fired. They are not paid to put their feet up or waste time thinking about history and the long-term future; they are paid to be decisive and to act now.The type of people who saw these problems unfolding, on the other hand, had much less career risk or none at all. We know literally dozens of these people. In fact, almost all the people who have good historical data andare thoughtful were giving us good advice, often for years  before the troubles arrived. They all have the patience of Job. They are also all right-brained: more intuitive, more...

 

Global profit margins, the second near certainty, are also declining rapidly, but have a long way to go. The estimates of future earnings that we have been sniggering at for a year are still inconceivably high. Why do they bother? To repeat our mantra: global profit margins were recently at record highs. Profit margins are the most provably mean-reverting series in finance or economics. They will go back to normal. After big moves, they almost invariably overrun. With the current set of global misfortunes, they are very likely to overrun considerably this time...

 

 

GMO Quarterly Letter Fall 2008 Part I