By
Borsgade
Founder of GMO Asset Management, Jeremy Grantham, is looking for the podcast “The Compound and Friends”. Grantham started GMO back in the early 1970s and was one of the first providers of index funds and has over time become one of the largest hedge funds in the world.
In the interview, they discuss a number of interesting topics, including his title of “Bubble Historian”, inflation, modern valuation, Tesla, real estate and impact investing.
It turns out the market is a coincident indicator of comfort.
What makes the typical portfolio manager feel comfortable, and number one it loves low inflation, it hates high inflation. It likes two percent stable inflation. It does not like to see it bouncing around. It doesn’t like to see it spike in the worst way, and it does not like to see it hanging around for multiple years, that’s the most important one.
Secondly, it loves high profit margins, what a surprise.
Now what’s in third way, way down in third place is the stability of growth. The growth rate does not have a positive correlation with PE. The market is nervous about bursts of high growth. It doesn’t like plus nine, minus two. It would rather have plus three, plus three, plus three, than plus nine, minus two, even though it averages higher.
Comfort is the best description.
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