An Argument Against Passive Investing

As clients move dollars to passively managed funds, investment management firm Grantham Mayo van Otterloo has “remained bearish as markets have lifted valuations,” according to an article in Barron’s. But James Montier, a member of the firm’s asset-allocation committee who was interviewed for the article, “often challenges the assumptions of his boss [Jeremy Grantham] and others around him.” Following are some of Montier’s comments from the interview: Passive investing: “You cannot describe yourself as an investor if you are going passive. You are welcome to call yourself a speculator, but you honestly can’t say you care about expected returns if […]

GMO’s James Montier on Fed-Induced Bubbles, Alpha, and More

James Montier of Grantham Mayo van Otterloo’s (GMO’s) Asset Allocation team spoke with Advisor Perspectives recently about interest rates, behavioral biases, and other key factors affecting markets. He said that unlike the longest-serving Fed governor William McChesney Martin, who said the central bank’s job is to “take the punch bowl away just when the party was getting interesting,” recently the Fed governors “are more like teenagers at prom night . . . spiking the punch bowl and handing out free drinks and hoping to get lucky at the end of the night.” This, he suggested later in the interview, has […]

Montier Not Finding Much Safety

James Montier and GMO are known for their conservative, cautious approach — a mindset that has helped the firm often recognize market and economic problems well ahead of others. So, what scares Montier right now? The lack of assets offering a “margin of safety”. “I just can’t find any assets that have a particularly high margin of safety,” Montier tells Advisor Perspectives. “There is nothing that reaches out and screams, ‘Hey, I’m really undervalued.’ Therefore, you are in this situation where you’re stuck in this kind of foie gras market where you’re being force-fed risk assets. That is a very uncomfortable […]

The “Seven Immutable Laws of Investing”

In a recent white paper, GMO’s James Montier takes an interesting look at what he says are “The Seven Immutable Laws of Investing”. The first rule, on which Montier spends the most time, invokes the late, great Benjamin Graham: “Always Insist on a Margin of Safety”. Montier writes: “Valuation is the closest thing to the law of gravity that we have in finance. It is the primary determinant of long-term returns. However, the objective of investment (in general) is not to buy at fair value, but to purchase with a margin of safety. This reflects that any estimate of fair […]

Montier: Don’t Believe the New Normal Hype

The “New Normal” concept has gotten a ton of attention in the financial and investment worlds in the past couple years. But in a new paper, GMO’s James Montier says not to believe the hype. In a paper posted on GMO’s web site, Montier says that for some economic indicators, there may indeed be a New Normal. For others, however, there isn’t. And, he adds, “what concerns me more than this are some of the implications that proponents of the new normal seem to draw when it comes to investing. … Attempting to invest on the back of economic forecasts […]