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Jeremy Grantham: The Rules Have Changed for Value Investors

By The Acquirer’s Multiple. Originally published at ValueWalk.

GMO Co-founder Jeremy Grantham recently did an interview with Wealthmanagement.com in which he discusses how the world has changed for value investors. He says, “Since 2000, it’s become much more complicated. The rules have shifted. We used to say that this time is never different. I think what has happened from 2000 until today is a challenge to that. Since 1998, price-earnings ratios have averaged 60 percent higher than the prior 50 years, and profit margins have averaged 20 to 30 percent higher. That’s a powerful double whammy.”

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“Diehard Ben Grahamites underestimated what earnings and stock prices would do. That began to be a drag after 1998.”

Here’s an excerpt from that article:

WealthManagement.com: What are the most interesting changes you’ve seen in the investment business since you began in 1968?

Jeremy Grantham: The market was extremely well-behaved from 1935 until 2000. It was an orderly world in which to be a value manager: there was mean reversion. If a value manager was patient, he was in heaven. The market outperformed when it was it cheap, and when it got expensive, it cracked.

Since 2000, it’s become much more complicated. The rules have shifted. We used to say that this time is never different. I think what has happened from 2000 until today is a challenge to that. Since 1998, price-earnings ratios have averaged 60 percent higher than the prior 50 years, and profit margins have averaged 20 to 30 percent higher. That’s a powerful double whammy.

Diehard Ben Grahamites underestimated what earnings and stock prices would do. That began to be a drag after 1998.

In 2000, there was a classic bubble driven by the technology sector and eventually it blew up, leaving us well-positioned. In the Greenspan-Bernanke-Yellen era, the market rallied on housing, and then there was the first truly global bubble in 2007, creating another opportunity to ply our trade. But underneath the surface things started to change.

You can read the article at Wealthmanagement.com here.

This original article was posted by Johnny Hopkins at The Acquirer’s Multiple.

The post Jeremy Grantham: The Rules Have Changed for Value Investors appeared first on ValueWalk.

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