Wikinvest Wire

The permabear and value investor siren call

Friday, October 24, 2008

There is no better example of why ordinary individuals are particularly unsuited for managing their own investment accounts than at this very moment.

Granted, these are extraordinary times, but, small fortunes can be made when bold investors seize the moment. Of course, modest savings with aspirations of becoming small fortunes can also be wiped out.

Hence the dilemma.

As perma-bears like Jeremy Grantham wake from a long slumber and as value investors like Warren Buffet open their wallets to snap up bargains (stocks that might be even better bargains next week, perhaps even more so next month), ordinary retail investors eye the stock market with a myriad of thoughts going through their heads.

That is, the ones that haven't already sold everything in a panic.

This report in BusinessWeek about Grantham's new outlook adds to the "fight versus flight" calculation:

Now, Grantham, whose firm manages more than $120 billion in assets, is almost gleeful. The value manager, who earned the sobriquet "perma-bear" for his long-standing bearish outlook, is buying. Like Warren Buffett and a growing number of savvy value investors -- among them, Third Avenue Management's Marty Whitman and Longleaf Partners' Mason Hawkins -- Grantham is seeing opportunities in the cheap prices created by this autumn's rapid stock market unraveling. Stocks, Grantham says, are now cheaper than they've been since 1987. "You are looking at the best prices in 20 years, and you should be making 7% to 8% to 9% real (inflation-adjusted) returns. The last time I was this optimistic was in the summer of 1982."

Not that Grantham's blindly upbeat. "It's optimism with great trepidation," he says. That trepidation reflects the fact that Grantham doesn't know if the market will fall further. But he's not the type to try to time the bottom. In fact, he says, bubbles historically overcorrect, and usually quite dramatically. That's what happened after the stock market crash of 1929, the 1965 collapse of the Nifty Fifty, and the contraction in Japan in 1989. "We are reconciled to buying too soon," says the money manager. "A value manager buys too soon and sells too soon. That's the nature of the beast."
With a stomach of steel and a keen sense of history, Grantham feels no qualms about buying now: "I don't have any anxiety. I feel so much better with history on my side. Truly. I've been looking forward to this for years."
Now, Mr. and Mrs. ordinary investor - push aside your own anxiety and go out there and seize the day!

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10 comments: said...

Nice post Tim. If you're interested in following the investment activities of legendary investors such as Grantham and Buffett, check out my weblog,, at Right now, I stalk, er, shadow Tom Barrack, Warren Buffett, Marc Faber, Jeremy Grantham, Bill Gross, Edward Lampert, Mark Mobius, Boone Pickens, Jim Rogers, and George Soros.

staghounds said...

Great. I'm 50 and I just inherited $200,000- all the capital I'll ever have.

What to do? I'm SO tempted to buy a bucket full of eagles, but I fear that's stupid.

The #$%^&* NASDAQ is back at 2001 levels.

Anonymous said...

buy more U.S. dollars .. heh heh

Chuck Ponzi said...

There's an old wall street joke that fits this point in time.

Q: What do you call someone who buys at the bottom and sells at the top?

A: A Liar.

If you cannot scrape together your cash and see what great opportunities there are RIGHT NOW in the stock market, you are either not looking or are blind and cannot be helped. Many excellent non financial companies have lost 75-85% of their value. Forget a recession, many of these are now pricing in Armageddon or bankruptcy. You'd have to believe we are on the cusp of the Greater Depression to accept those prices at face value. For all of the talk of inflation, I can't reconcile the 2 negative slants... you can have one but not the other. Either inflation or great depression. Even inflation or recession. I don't see how you can have both at the same time. Maybe it's my professional economics training that's getting in the way.

Dan said...

My problem is that I don't believe the tide has fully gone out. I want to see who exactly is swimming naked but all I can see is tits - I wanna see some ass!

David said...

uh.... chuck... you should read more history.... stagflation.... inflationary depression.... there's nothing new about this stuff

News said...


I had lower targets for Dow than you did. My target was 9500. However, with the events of the last 2 weeks, I would not be surprised if we go to 6800-7200 range. From my perspetive, the tax consequences of such a loss would not make sense.

Do you really believe that cost of capital will really fall to the levels before this crash any time soon?


Pool Shark said...

The fact that Buffet, Grantham, and others in these comments are bullish tells me we are still nowhere near a bottom.

I'll hang onto my cash, thank you.

Anthony J. Alfidi said...

The Dow still hasn't fallen to its 2002 lows, and this recession is going to be a LOT worse than that one. It will be time think about buying when the DJIA breaks below 7000. We won't have long to wait.

staghounds said...

",,,great opportunities there are RIGHT NOW in the stock market..."

I figured out where they are. With all the smart, independent women who are looking for nice guys, and in the same room are the politicians who put the public's needs before getting reelected.

And some unicorns.

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