A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

Podcast #114 — The Good Kind of Populism, The Bad Kind of Populism

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I’ve posted Podcast #114 to the “RobCasts” section of the site. It’s called The Good Kind of Populsim, the Bad Kind of Populism.

A certain amount of anger about the poor leadership decisions that led to the economic crisis is justified. But we only hurt ourselves if we let anger blind us to the true causes of the stock crash.

Comments

  3. Rob,

    The time frame in that study was much too short. It was 5 years as opposed to Jeremy Grantham’s minimum of 7 years. I would prefer several decades. It also included funds that restricted Jeremy Grantham’s flexibility. That is, it includes funds that Grantham warned against.

    It would have been more interesting to see how well Jeremy Grantham’s predictions have held up. He has made his predictions publicly available. They include confidence limits.

    Have fun.

    John Walter Russell

  4. Thanks, John.

    There was a recent article in the Economist about the Grantham predictions. The article reports that the predictions have held up amazingly well.

    The Passive Investing apologists are playing their standard trick of pretending that fund managers do not consider marketing effects when making decisions as to how to invest fund money. Fund managers of course need to win over the support of investors and that is done by investing ineffectively, not effectively. There have been hundreds of millions of dollars invested in marketing campaigns aimed at persuading investors to invest emotionally (that is, to ignore price when setting their allocations). Not surprisingly, emotional investors put great pressures on fund managers to invest ineffectively, and many do indeed do so in an effort to keep their funds afloat until the Passive/Emotional Era comes to an end.

    The fund performance thing is a distraction from the question that matters. The question that matters is — Has Grantham been able to predict long-term stock returns effectively and would investors have done well to have taken his predictions into account when setting their stock allocations? The answer is — Grantham has done an amazing job. His predictions have been very much on the mark.

    The Passive Investing apologists create diversions because they lack confidence in their ability to make a case for emotional investing on the facts. Common sense tells us that long-term timing must work and the historical record confirms that in fact it always has worked. The fact that Grantham was able to say in advance how stocks would perform and get it so right shows that the market is NOT efficient or rational. An efficient/rational market would have incorporated Grantham’s insights into the stock price immediately after he made them. What happened in the real world is that millions of investors placed their confidence in the “experts” touting Passive Investing marketing slogans and paid a big financial price for doing so.

    Grantham is a hero to all middle-class investors, in my assessment. He is a straight shooter. We need more of them in this field.

    Rob