Ten Lessons (Not?) Learnt
When he was at Societe Generale, I very much enjoyed the work of James Montier. He is now working with Jeremy Grantham at GMO.
I have two of James’ books in my queue, Behavioural Finance: Insights into Irrational Minds and Markets (2002) and Behavioural Investing: A Practitioners Guide to Applying Behavioural Finance (2007).
He hasn’t begun publishing officially yet, but this slide deck has been making the rounds: Ten Lessons (Not?) Learnt:
Markets Aren’t Efficient
Relative Performance is a Dangerous Game
This Time is Never Different
Valuation Matters (in the Long Run)
Wait for the “Fat” Pitch
Sentiment Matters
Leverage Can’t Turn a Bad Investment Good
Beware of Over Quantification
There is No Substitute for Skepticism
The Benefits of Cheap Insurance
The full GMO piece can be found here.
Hat tip Trader’s Narrative
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January 3rd, 2010 at 2:21 pm
These lessons have not been learned because the government moved in too quickly to stem the pain.
Pain is a wonderful teacher. When you hit your thumb with a hammer, you think “Shit, that hurt… let’s hammer more carefully in the future.” That’s how pain is supposed to work.
When Uncle Sugar comes in to prop up everyone, there is little to no pain as a repercussion of bad decision-making or risk-taking, and therefore people don’t learn the important lessons.
The one lesson that has been learned out of this crisis is this: If you become big enough, you can act as a financial terrorist. You can walk into the halls of Congress and say “Unless you give us trillions of dollars of taxpayer money, we’re going to commit suicide and take a large number of people and businesses with me!”
The proper response to this sort of threat is to kill him before he kills you, or more accurately, put him out of business before he puts other people out of business. The actual response of Congress has been to adopt a supine posture and give the terrorist what he wants, while harrumphing to the press that this “was an outrage.”
January 3rd, 2010 at 2:49 pm
Much of this analogy feels true, but allow for the possibility that they perceived this was tantamount to being the “extended payment” plan out of this mess.
With 401k money and real estate basically cut in half, they felt the need to prevent any further fear which would cause even more selling and depositing with the money centers.
January 3rd, 2010 at 6:22 pm
Unrelated, but there are two nice bailout charts in the latest issue of Mother Jones, avail online for free. They break out which program got $7.5 trillion at the Fed, and $7.5 at Treasury, nfi. Their info is current as of Oct 31, 2009, but somehow I trust BR’s numbers more, which he revised to under $12 trillion the last I saw. A $2 trillion difference calls for further explanation, if anyone has one. Link to the article:
The Real Size of the Bailout
http://motherjones.com/politics/2009/12/behind-real-size-bailout
Link to both charts:
http://motherjones.com/politics/2010/01/real-size-bailout-treasury-fed
January 3rd, 2010 at 8:50 pm
I don’t know why but ‘Wait for the “Fat” Pitch’ chimed really loud in my head. I think that will be the move of the year this year. It might be wise to look for one good solid trade this year (above and beyond what you are already comfortably doing). I think I’ll accumulate cash this year and see what is pounceable when it becomes “fat”.
January 4th, 2010 at 1:26 am
[...] Ten Lessons (Not?) Learnt A good summary. [...]