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Stocks Are Too Risky. What GMO’s Inker Says to Buy Instead.
GMO has been saying EM will out preform for years.. Eventually by the roll of the dice they will be right I guess. I think they base a lot of their opinion on valuations. This outpreformance may eventually be is true but the only thing Brazil is out preforming on now is new Covid cases and deaths, for example. I think Covid will decimate EM.
GMO website has many very long and very thoughtfully argued position papers, including a number by Grantham that are valuable about climate change, but I have never mad any money following their advice.
Inker has just cut equities to 25% in GBMFX the global allocation fund he has run for decades.
Mere mortals can't get into this fund, although it is not clear why you would want to with it's middling record over the last few years. TIAA offered it for years in their retirement plans, but recently removed it probably because of nonperformance. My wife's account would have been better off in VWINX which has a ten year return of 105% vs GBMFX 38%
@sma3 +1. GMO always sounds so reasonable... just not right. I guess it shows just how hard market timing or even asset class timing is. Slow and steady (like VWINX) seems a better way, at least for mere mortals.
as FAANG has beaten everything else, people who tried to apply their "rational" principles have lost out. This is why diversification is important, but folks who remain flexible and can invest in stocks like that rather than stick to fixed rules do better
The interviewer asked the question about their EM predictions. This was the question and response from the article:
You’ve recommended emerging market stocks since 2017. That hasn’t panned out. Why do you still like them?
The average emerging stock is trading at half the valuation of the average U.S. large-cap stock. We’ve seen in emerging the same thing we’ve seen in the developed world: A relatively small handful of growth stocks have outperformed the indexes hugely, and half of the universe or more has been left behind. As a result, you can put together a portfolio of decent companies trading at about one times book value and seven times trailing earnings, with a trailing dividend yield of over 6%. That’s pricing in a really bad outcome, which is comforting. If you think earnings are merely going to be stable, you have an earnings yield of 14%. You don’t need to imagine good things happening to get good returns out of companies trading at those valuations.
Another pointed question on their accuracy around the US stock market:
Does that cause you to wonder if you should tweak your model to take secular changes into account?
Over the course of those 20 years, we have done a lot of digging into our assumptions, to understand where things have played out differently than we expected. One of the striking [observations]: Profitability around most of the world has been stable. Profitability for U.S. small- and mid-cap stocks has been stable. The one place that was absolutely not the case is U.S. large- caps, which have seen profitability, and their apparent return on capital, move up in a way that is fairly unique.
...you can put together a portfolio of decent companies trading at about one times book value and seven times trailing earnings, with a trailing dividend yield of over 6%. That’s pricing in a really bad outcome, which is comforting. If you think earnings are merely going to be stable, you have an earnings yield of 14%.
I'll "settle" for that....but where do I find it?
Does GMO have such a fund that I don't have access to?
Thanks for the summary. You have to have faith or perseverance and assume that even with Covid damage, EM will either not drop much or if it does it will come back before you need your capital back.
A similar response seems to be the mantra of every value investor " wow one times book" How can anyone predict what earnings are going to be in these companies now? OR the book value of these companies a year from now.
I am not saying it might not be worth the risk over time, just that it is risky and not a dividend play or only in small amounts
Don't know @bee. I'm not defending what Inker is saying has value. Just copy pasted Inker's response to why they have been recommending EM as where to be for the last 3 years. I never know if those without a subscription to Barron's can read these articles.
Actually I thought the interviewer called out GMO pretty well on there wrong (to date) predictions.
GMO has been saying EM will out preform for years.. Eventually by the roll of the dice they will be right I guess. I think they base a lot of their opinion on valuations. This outpreformance may eventually be is true but the only thing Brazil is out preforming on now is new Covid cases and deaths, for example. I think Covid will decimate EM.
GMO website has many very long and very thoughtfully argued position papers, including a number by Grantham that are valuable about climate change, but I have never mad any money following their advice.
Inker has just cut equities to 25% in GBMFX the global allocation fund he has run for decades.
Mere mortals can't get into this fund, although it is not clear why you would want to with it's middling record over the last few years. TIAA offered it for years in their retirement plans, but recently removed it probably because of nonperformance. My wife's account would have been better off in VWINX which has a ten year return of 105% vs GBMFX 38%
Every dog may have it's day....
You can get into Inker's GMO fund. WARCX Wells Fargo Absolute Return is a feeder fund into GBMFX. However the expense ratio is 2.28% and a 1% differed load. Its track record is not stellar.
GMO has been wrong for 10 years already. I posted about them for years. Their forecast for US stocks were off significantly, they prefered EM stocks which lagged by a lot too. I kept GMO forecast fro 2010, see the (link)
Since 2008-9 and massive intervention by the Fed all the following forecasts were wrong GMO, Bogle, Gundlach, Arnott(PAUIX), PE, PE10, inverted yield
Follow the charts and trends and dismiss all the forecasts.
I remember reading a GMO article by Grantham saying that the S&P 500 was overvalued when it reached 1500 back in 2003 or 2004 (I can't remember year). That caused me to be cautious. The S&P 500 went on to double from those levels. I understand that people can't predict what the fed and other central bankers will do (i.e. low interest rates and QE forever) and fed decisions influence PE,.. but yes GMO has been WRONG for a while now. I am buying EM right now though. We shall see. I guess another thing that is impossible to predict is inflation which can also have effect on PE,.. Bottom line I guess is that making forecasts with respect to markets (bonds, stocks,..) doesn't work and yet I keep reading financial articles about them and people keep publishing them. As Buffett says, keep emergency cash and invest in the S&P 500 for the long run. I guess like the late Bogle Buffett doesn't mention investing in international markets.
Have faith in the FED, they will come to your rescue if something goes baad. Forecasts by GMO, Bogle, Gundlach, Arnott(PAUIX), PE, PE10, inverted yield doesn't assume FED INTERVENTION. Follow the mantra (not mine) -Don't FIGHT the FED. Buy TESLA - next TRILLION DOLLAR COMPANY.
Comments
Stay Safe, Derf
GMO website has many very long and very thoughtfully argued position papers, including a number by Grantham that are valuable about climate change, but I have never mad any money following their advice.
Inker has just cut equities to 25% in GBMFX the global allocation fund he has run for decades.
https://www.morningstar.com/funds/xnas/gbmfx/analysis
Mere mortals can't get into this fund, although it is not clear why you would want to with it's middling record over the last few years. TIAA offered it for years in their retirement plans, but recently removed it probably because of nonperformance. My wife's account would have been better off in VWINX which has a ten year return of 105% vs GBMFX 38%
Every dog may have it's day....
Does GMO have such a fund that I don't have access to?
A similar response seems to be the mantra of every value investor " wow one times book" How can anyone predict what earnings are going to be in these companies now? OR the book value of these companies a year from now.
I am not saying it might not be worth the risk over time, just that it is risky and not a dividend play or only in small amounts
Actually I thought the interviewer called out GMO pretty well on there wrong (to date) predictions.
Couple if previous podcasts..enjoy
I kept GMO forecast fro 2010, see the (link)
Since 2008-9 and massive intervention by the Fed all the following forecasts were wrong GMO, Bogle, Gundlach, Arnott(PAUIX), PE, PE10, inverted yield
Follow the charts and trends and dismiss all the forecasts.