Jeremy Grantham has released his latest investment letter which he dubs, “The Longest Quarterly Letter Ever.” In it, he blends philosophy with sage investment observations. It is definitely one of the superior reads in the world of investing.
Grantham opines early on,
The market is gloriously inefficient and wanders far from fair price but eventually, after breaking your heart and your patience (and, for professionals, those of their clients too), it will go back to fair value. Your task is to survive until that happens. Here’s how.
GMO’s Jeremy Grantham recently commented in his latest letter (August 2011) that his firm is modestly buying equities for the first time since mid-2009.
Despite his view that the S&P 500 is worth a mere 950, Grantham is of the opinion that stocks (in some select areas) offer a better risk/reward than the available alternatives (mainly fixed income).
Robert Smith, writing for Oregon Business, highlights the attributes of timber as an investment class. Smith points out that worldwide demand, especially from Asian countries, is contributing to pricing power for wood products derived from timber. Smith states, “Worldwide demand for softwood lumber rose 18% in 2010, continuing a trend that started in early 2009. In the first quarter of 2011 global wood consumption is up 20% compared to the same period last year.”
Smith also quotes Jeremy Grantham who claims timber is the best long-term investment available.
The Stock Market Advantage portfolio has two wood products companies with large timber holdings structured as REITs (Rayonier, RYN; and Weyerhaeuser, WY). There are several more available in the publicly traded markets including:
Plum Creek Timber (PCL)
Potlatch (PCH)
Deltic Timber (DEL)
Pope Resources L.P. (POPE)
There are also a couple of ETFs focusing on timber and forestry:
Guggenheim Timber (CUT)
iShares S&P Global Timber & Forestry Index Fund (WOOD)
The chart below shows the Guggenheim Timber ETF has outperformed the S&P 500 over the past 2 years.
Timber has various attributes that other commodities don’t possess. Timber companies can harvest their “crop” whenever they choose. Preferably when prices are high if they are well capitalized. Timber will not die on the vine like agricultural commodities. Trees are constantly growing, therefore the value of timber holdings become more valuable over time.
Caveat: During bear markets timber companies have plummeted to almost unbelievable depths. The Guggenheim Timber ETF plunged from $20.90 to $7.26 (a drop of 65%) over the one year period ending March 9, 2009 (the bear market low). The S&P 500 dropped a “mere” 47% over the same timeframe. It pays to be patient and wait for those times when investors are panicking and dumping their shares for whatever they can get when investing in timber.
Jeremy Grantham is out with his new letter. He likens investors to Pavlov’s dogs; conditioned to behave in a certain way. He also provides a valuable history lesson showing since 1964 the 3rd year of the presidential term has a remarkable tendency of being up big.
Grantham also reviews his past year’s predictive hits and misses. His view of the coming year is that risky assets will continue to pay off, although his fair value for the S&P 500 stands at 910. He continues to favor high quality large cap stocks, forestry assets, and agricultural land.
There is much more in Grantham’s letter and it is always an interesting read and available with a simple registration.
John Hussman, renowned money manager, has done some research on stock valuations and reaches the same conclusion as Jeremy Grantham regarding high quality large cap stocks. His analysis shows they are relatively cheap compared to cyclical stocks.
From a stock selection perspective, it is striking how extended the stocks of cyclical companies have now become, relative to more stable companies. This is true both on the basis of price and valuation. Cyclical stocks include companies such as Alcoa, Citigroup, Caterpillar, CSX, DuPont, Deere, Ford, FedEx, Goodyear, Hewlett Packard, International Paper, Southwest Airlines, 3M, Sears, United Technologies, and Whirlpool, among others. Staples include companies like Abbott Labs, ADP, Colgate Palmolive, Disney, General Mills, Johnson and Johnson, Kimberly Clark, Coca-Cola, McDonalds, Merck, Pepsico, Pfizer, Safeway, Walgreens, and Wal-Mart, among others.
The following chart (courtesy of Bill Hester) presents the ratio of the cyclicals index (CYC) versus the staples index (CMR). It’s notable that the most recent spike in this ratio coincided with Bernanke’s initial announcement of QE2. Cyclicals are now nearly as overextended relative to staples as they were at the 2007 peak. As one would infer from the word “cyclical,” these companies are unusually prone to volatility.
Hussman has another chart comparing price/book values that is even more startling at the source below.
Jeremy Grantham was interviewed a couple of days ago by Maria Bartiromo. Grantham commented extensively on the Fed’s market manipulations and their path of destruction. He mentioned they have enormous power to sway markets and will create another bubble and that all bubbles pop. Grantham said the Fed can stop bubbles, although they have said they can’t, since they indicate they don’t recognize them in the first place.
Grantham also talked up sensible fiscal stimulus that could end the suffering of workers whose skills are eroding the longer they are unemployed.
Grantham said the present situation is very dangerous with commodity prices being inflated by currency manipulation. His belief is that the world is running out of everything, which will become devastatingly clear in the near future. He thinks buying into companies which have “things in the ground” will pay off over time.
When questioned about the valuation of emerging markets, Grantham indicated they are reasonable, but a little overpriced, and the bull market could continue for a couple more years.
Grantham also spoke about the virtues of having cash on hand in case a crash occurs. He sees fair value of the S&P 500 at 900. If he was forced to buy stocks, he would concentrate on the blue chips like Coca Cola and a dose of emerging market equities.
When asked about the so-called fixed income bubble, Grantham said he didn’t believe it was a bubble by his standard definition. It was not created by “animal spirits,” but from investors being frightened by the financial crisis.
Grantham forecasts a decline in the dollar unless a currency war breaks out which he pointed out we haven’t had since the 1930′s. He feels the Fed’s QE policy is actually hurting the economy by lowering rates on retiree’s safe investments.
Jeremy Grantham has released his latest quarterly commentary and it’s excellent as usual. He spends much of it in a diatribe against the deserving pair of rogues Greenspan and Bernanke. Unfortunately for us, as the economy recovers and the artificially stimulated market gets up a nice head of steam, the Greenspan-Bernanke team officially loses interest, [...]
Jeff Sommer writes about prevalence of the presidential election cycle, which is the tendency of the market to outperform in the 3rd year after the election of the president. Sommers includes comments from well-known strategists including Jeremy Grantham; Eric C. Bjorgen, a senior research analyst at the Leuthold Group; Yale Hirsch, the former editor of [...]
Several well regarded money managers including Jeremy Grantham, Whitney Tilson, Robert Olstein, and Bill Miller believe there’s good value in the large cap blue chip stocks. Tilson of T2 Partners says Microsoft Corp. is a steal. Its stock has lost 4 percent in the past year, while the rest of market has risen. Yet the [...]
Some high profile investors are concerned about deflation, which could prove problematic for economic growth and corporate profits. The worrywarts include Bill Gross, Jeremy Grantham, and hedge-fund managers David Tepper and Alan Fournier. Mr. Gross urges investors to focus on cash flows that are “relatively certain,” such as dividends and interest from stocks and bonds [...]
Jeremy Grantham has released his latest investment letter which he dubs, “The Longest Quarterly Letter Ever.” In it, he blends philosophy with sage investment observations. It is definitely one of the superior reads in the world of investing.
Timber May Be the Best Investment
by Barron Maestro on June 21, 2011
Robert Smith, writing for Oregon Business, highlights the attributes of timber as an investment class. Smith points out that worldwide demand, especially from Asian countries, is contributing to pricing power for wood products derived from timber. Smith states, “Worldwide demand for softwood lumber rose 18% in 2010, continuing a trend that started in early 2009. In the first quarter of 2011 global wood consumption is up 20% compared to the same period last year.”
Smith also quotes Jeremy Grantham who claims timber is the best long-term investment available.
The Stock Market Advantage portfolio has two wood products companies with large timber holdings structured as REITs (Rayonier, RYN; and Weyerhaeuser, WY). There are several more available in the publicly traded markets including:
There are also a couple of ETFs focusing on timber and forestry:
The chart below shows the Guggenheim Timber ETF has outperformed the S&P 500 over the past 2 years.
Timber has various attributes that other commodities don’t possess. Timber companies can harvest their “crop” whenever they choose. Preferably when prices are high if they are well capitalized. Timber will not die on the vine like agricultural commodities. Trees are constantly growing, therefore the value of timber holdings become more valuable over time.
Caveat: During bear markets timber companies have plummeted to almost unbelievable depths. The Guggenheim Timber ETF plunged from $20.90 to $7.26 (a drop of 65%) over the one year period ending March 9, 2009 (the bear market low). The S&P 500 dropped a “mere” 47% over the same timeframe. It pays to be patient and wait for those times when investors are panicking and dumping their shares for whatever they can get when investing in timber.
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