Wednesday, April 3, 2013


Gross' new Investment Outlook is very thought-provoking.

Is it possible that the last 50 years' track record had been largely fueled by the big change in the currency mechanism and the credit expansion that ensued? We're talking about the Nixon Shock which made most currencies go freely floating and took the USD off the gold convertibility option.

He ends it very cheekily :)

Man in the Mirror Speed Read
  1. Investors should be judged on their ability to adapt to different epochs, not cycles. An epoch may be 40-50 years in time, perhaps longer.
  2. Bill Miller may in fact be a great investor, but he’ll need 5 or 6 more straight “heads” in a future epoch to confirm it. Peter Lynch is a “party pooper.” Warren is the Oracle, but if an epoch changes will he and others like him be around to adapt to it?
  3. No matter how self-indulgent you think this IO is, I just looked in the mirror and saw at least a 7. You must be blind!

I believe that we won't know if things are going to change. An odd aspect of time is that the farther back you go in history the shorter the time periods become - I mean that people talk about the entire 19th century as though it was the first 5 years of the 1990s. A 10 year time period from 1929 to 1939 seems a short period relative to a much more information-dense 2002-2012.

If one goes back to Graham's hay days when he would buy companies on the super-cheap and would sell when they would become cheap or reasonably priced, and one compares it to now (the 1960s onwards) where stocks have not been so abundantly cheap, and the value investing style itself changed from cigar butts to strong companies with strong competitiveness and available for 'decent' prices.

If I had to rubbish myself, I could well say that the Korean market was super cheap in the 2000s and that the Indian market was super cheap around the year 2000 - so, is it true that cheapness is a matter of time? And once it is there, everyone starts believing in a new 'epoch'?

Going back to Gross, and this reminds me of Stanley Druckenmiller, if things really are changing the way they changed from pre 1970s to post 1970s, will that really change the way one ought to look at an asset that yields 20%?

Taleb's harping about how new things are unfathomable forces one to see the future as though something unimaginable can happen; my belief is that as long as the basic tenets of investing (such as buying cheap, having a margin of safety if things go bad, understanding the downside, understanding competitive advantages, cash flows and balance sheet and keeping one head low and focusing on real stuff relative to market hooplah) are understood and practised, the new epoch or the new normal will treat us well.

Of course, this may involve seeing one's company trading at a 5 PE for prolonged periods of time. That would be an odd odd feeling.

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