Sunday, May 24, 2009

5/24 Quote of the Day

From Jeremy Grantham's May 2009 letter, bemoaning among other things the fact that there is not likely to be another investable bubble any time soon.

"As my favorite quote by Mandelbrot (1983) says, “Even though economics is a very old subject, it has not truly come to grips with the main difficulty, which is the inordinate practical importance of a few extreme events.” If this last 10 years did not prove him right, nothing will."

Many professional investors who made a killing in the last decade or so did it by identifying a one-directional megatrend (it was a bubble but that's OK) and riding it for as long as possible. You can outperform the S&P 500 by 200 basis points per year til the cows come home and it doesn't compare - not even close - to getting one big call right given the economics of the business. Unless you have a secret, like doing something illegal.

Now that all of the bubbles have broken, hitting home runs will be a lot harder.

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