Grantham's latest - "Just Desserts and Markets Being Silly Again"

[mhdousa]

Attached.

 

As always, plenty of creative vitriol directed at usual suspects.  

 

I'm having trouble dissecting what he is suggesting in this paragraph.  Can anyone interpret it for me?

 

Notwithstanding this concern, I

believe we are well on the way to my “emerging emerging

bubble” described 18 months ago (1Q 2008 Quarterly

Letter). I would recommend to institutional investors,

including my colleagues, to give emerging equities the

benefi t of value doubts when you can. For once in my

miserable life, I would like to participate in a bubble if

only for a little piece of it instead of getting out two years

too soon. Riding a bubble up is a guilty pleasure totally

denied to value managers who typically pay a high price

to the God of Investment Discipline (Thor?) for being so

painfully early. I think the fi rst 15 percentage points over

fair value would satisfy me. If I’m right, the fi rst 15%

will be a small fraction of the eventual bubble premium.

So in a sense, we would be early once again.

 

[benhacker]

He is saying that managers should 'relax' their valuation rules on Emerging stocks because he thinks there is a significant probability that the next bubble will be in this asset class.

 

He is arguing that the sector should receive an option premium value in addition to replacement value.

 

Regardless of what you think of him, he is one of the most remarkably consistent and accurate pundits out there... he has saved and made me a fair amount of money over the years which I thank him for.

 

Ben

[oldye]

China's middle class (40,000-100,000rmb) is expected to increase 6 fold in the next 15 years

gdp of women world wide is going up by 50% in the next 5

at the current rate internet use world wide will be fully saturated in the next 10 years (think cell phones)

 

 

You don't need to look oversea's for companies that will benefit from huge macro trends

I'm gonna go out on a limb and project that women drink 50% more cokes 5 years from now and JnJ sells 50% more lapband surgeries :)

 

 

 

 

 

 

[Uccmal]

You don't need to look oversea's for companies that will benefit from huge macro trends

I'm gonna go out on a limb and project that women drink 50% more cokes 5 years from now and JnJ sells 50% more lapband surgeries 

 

Or all those power plants need GE turbines, or those new Chinese jets need GE engines...not to mention reliable P&C insurance, computers, mobile devices...

 

Some things are just easier to import or allow established multinationals to build.   

[mhdousa]

Thanks, Benhacker.

 

So, in trying to take advantage of Grantham's thesis, what do people think are the most attractively-valued "high-quality" companies out there? JNJ seems like one.  While it's not the screaming deal that it was in March (obviously), it still is selling at much less of a premium than it usually does. 

 

 

[Cardboard]

Mhdousa,

 

There was a thread around those lines recently and these are the stocks that I have found to be large, safe and high quality at quite attractive multiples:

 

JNJ, KFT, BRK, GS, POW (Canada), CVX

 

You won't double your money overnight with these, but you will sleep well at night and stuck in a drawer for 5 years, I would hazard to guess that the return should beat the S&P and I would say reach at least 10% a year.

 

Cardboard

[vinod1]

Thanks, Benhacker.

 

So, in trying to take advantage of Grantham's thesis, what do people think are the most attractively-valued "high-quality" companies out there? JNJ seems like one.  While it's not the screaming deal that it was in March (obviously), it still is selling at much less of a premium than it usually does.   

 

 

 

Grantham's implementation of this is GMO Quality Fund, the top holdings (as of 9/30/09) of which must be what he considers the most attractive.

 

Microsoft Corp. 6.6%

Johnson & Johnson 6.3%

Wal-Mart Stores Inc. 5.6%

Oracle Corp. 5.4%

Procter & Gamble Co. 5.3%

Coca-Cola Co. 5.1%

Pfizer Inc. 4.8%

Cisco Systems Inc. 4.1%

Exxon Mobil Corp. 4.0%

Chevron Corp. 3.8%

PepsiCo Inc. 3.6%

Google Inc. (Cl A) 2.8%

QUALCOMM Inc. 2.5%

International Business Machines Corp. 2.4%

Abbott Laboratories 2.2%

Total 64.5%

 

Vinod