During this interview with Insightful Investor, Jeremy Grantham discusses the difficulty of achieving good investment returns in the current market. He argues that past winners, like the “Magnificent” Nifty 50 stocks of the 1970s, often underperform in subsequent cycles. Grantham believes this pattern will likely repeat, despite the impressive nature of today’s large companies. He criticizes the influence of big business on government and suggests limitations on corporate political spending as a potential solution. Here’s an excerpt from the interview:
Grantham: We had a hard time fighting the Magnificent etc, as a lot of people have had.
You know you either own them or you don’t and if you don’t you’re in a different league, and if you’re buying quote cheap stocks you’re not going to keep up.
And so we have suffered a second time and now the question is will we be vindicated, as we were the first time?
And I suspect yes, and every cycle by the way people always think that the heroes of that cycle will keep going forever.
The Nifty50… one of the reasons we had the Nifty50 which is back in the 60’s, finished the peak in 72.
They were called one decision stocks. They were so good you only had to buy them and hold them forever and they were the J&J’s and the mercs and the ibms and so on, and I went back and looked in the record book and none of them had failed for like 20 years, which is unusual.
And then what happened in the following 10 years is you took out Avon and shot i,t and Xerox and shot it, and Eastman Kodak which was a giant above suspicion and shot it, IBM you half shot it it limped off the battlefield more dead than alive, and then regrouped.
But when you do that you expect a very different outcome and you got it, and the Nifty50 were terrible performance for 10, 15, even 20 years they looked very sad.
And yet they looked untouchable, looked magnificent, it was so obvious why aren’t you buying these great companies you idiot, why are you buying twin disk clutch from Oclair Wisconsin you know when you could be buying IBM.
And so it is this time. And will it turn out the same way that it did with radio and so on in 1929 and each of these iterations, or will this time be different and that’s what we in a sense wait to see.
And I suspect it will turn out very similarly each one has a separate spin and lord knows these are more impressive companies I believe than they have been in other cycles.
They owe a lot to government decisions to allow them to buy every small interesting company in the field and/or important rivals etc etc as do all the giant companies in America.
This has been a a good era for giant companies, they have really been calling a lot of the shots in government.
They have been allowed to spend money like water of course since the famous Supreme Court decision.
I wrote it up under the heading of Supremely Silly, the idea that companies would be able to spend unlimited money and not really be required to report it to the actual owners of that money, their stockholders.
I think having being disallowed to spend any money in politics would be a brilliant start to a better breed of capitalism.
You can watch the entire interview here:
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
