Jeremy Grantham: Investors Are All So Short-Term And Basically A Bit Innumerate

Johnny HopkinsJeremy GranthamLeave a Comment

In his latest interview on the Meb Faber Podcast, Jeremy Grantham discusses what happens when investors are short-term in their thinking and bit innumerate. Here’s an excerpt from the interview:

Jeremy: And people are all focused as they always are on the next year or two. I get that. But I’m much more interested in a period beyond that. What does the next ten years look like? It looks like a period of shortage, invention, challenge, inflation, and cheaper assets. Whoopie for those people who are acquiring them, not so good for people who are selling.

Meb: That’s right. Well, if you’re a young person, that’s the best thing you can cheer for is a nice, big, fat bear market.

Jeremy: Absolutely. Oh, and by the way, just let me make the point. People don’t realize that when you have cheap assets, that 6% yield that you’re reinvesting…a forex is a good example. You pay 6%, you buy another forex, 6% increment a year. When it doubles in price, what are you doing?

You’re now compounding at 3% a year. In 48 years, you’re down to a quarter of the wealth you would have had in the 6% world, a quarter. And yet we all love high-priced assets. It’s because we’re all so short-term and basically a bit innumerate.

We don’t get it that cheap assets with high yields is a much better state to live in than high priced assets and tiny yields, or in the case of bonds, negative.

You can listen to the entire discussion here:

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