Why Jeremy Grantham Refuses To Buy Overvalued U.S. Stocks
It is that time during the cyclical stock market recovery where 99.99% of the world is rushing head first into the market. While money managers could not find a single investor in 2009, they are having their doors beaten down today with new capital to invest. These managers make commissions by placing those funds into the stock market casino. If a manager refuses to invest the capital and recommends holding some cash, they will either under perform the market in the short term and lose the clients or lose their job entirely. While it is almost impossible today to find a remaining rational money manager, the commentary below comes from one of the all time greatest.
In the first interview with Forbes which took place in 2009, Graham discusses why he took his client's money out of the markets in 1998. He said that doing the right thing, pulling some money out of a massively overvalued market, caused him to lose 60% of his asset base. Investors could not psychologically handle watching from the sidelines with any portion of their capital and "miss out" on the spectacular returns received by everyone around them.
The second interview with Fortune took place this week. I highly suggest reading the entire interview, but I will include just a portion of it below.
Grantham tells Fortune that just like 1998, his models show a negative 7 year return on the S&P 500 based on the current valuation. You'll note that Grantham believes the markets could rise another 25% from here, but he refuses to put client's money into a bubble that will at some point take it all away.