The Long View
The Long View
Jul 10, 2019
James Montier: 'How Do I Get Paid for Owning This Asset?'
Play • 53 min

Our guest on this week's installment of "The Long View" podcast is James Montier. Montier is a member of the asset-allocation team at Grantham, Mayo, Van Otterloo & Co. Before joining GMO in 2009, he was co-head of global strategy at Societe Generale. A prolific and incisive writer, Montier has authored several books, including Behavioural Investing: A Practitioner's Guide to Applying Behavioural Finance; Value Investing: Tools and Techniques for Intelligent Investment; and The Little Book of Behavioral Investing. He's also a regular contributor to GMO's library of white papers and research studies on topics ranging from productivity, strategic asset allocation, contrarianism, and more. In addition to his duties at GMO, Montier is also a visiting fellow at the University of Durham and a fellow of the Royal Society of Arts.

Background 
Grantham, Mayo, Van Otterloo & Co.

Behavioural Investing: A Practitioner's Guide to Applying Behavioural Finance by James Montier 

Value Investing: Tools and Techniques for Intelligent Investment by James Montier 

The Little Book of Behavioral Investing: How Not to Be Your Own Worst Enemy by James Montier 

GMO's research library  

Montier's articles in GMO's research library 

Montier's Role at GMO
"My role is essentially to be difficult, and it turns out I'm quite good at that." Montier describes his role at GMO and how his contributions to the firm are measured. (1:10-3:11)

Fostering Debate at GMO
"We have never had a house view." Why debate and constructive devil's advocacy is welcome at GMO. (3:12-4:31)

"Investing is one of those fields where there is almost constant evidence that we are all wrong." How to foster humility and a diversity of views. (4:32-7:38)

Debating Jeremy Grantham on mean reversion: Montier gives an example of an issue the team has debated recently--how long it takes for markets to revert to their long-term averages. (7:39-9:36)

Forecasting and Portfolio Construction
How the debate over mean reversion informs GMO's asset-class forecasts. (9:37-10:09)

Corporate concentration and low interest rates: How GMO is reconsidering these variables and their impact on the asset-class forecasts it makes. (10:10-11:38)

"The Idolatry of Interest Rates, Part II: Financial Heresy and Potential Utility in an ERP Framework" by James Montier and Ben Inker (Aug. 11, 2015)

How GMO incorporates its asset-class forecasts into the multi-asset strategies it manages. (11:39-12:37)

  • GMO Benchmark-Free Allocation III GBMFX  

The appeal of a "robust" forecast that's meant to help portfolios withstand various potential outcomes. (12:38-14:15)

"Our portfolios look a little freakish." Montier explains why GMO is U.S.-stock-phobic and, conversely, why the firm is finding value in alternatives. (14:16-18:04)

Career risk: Where individual investors hold an edge over institutions. (18:05-18:55)

Alternatives
Montier defines "alternatives." Different ways of owning standard risks--depression risk, inflation risk, and liquidity. (18:56-21:49)

Montier presents two examples of alternative strategies that GMO employs--merger arbitrage and put-selling--to own standard risks in different ways. (21:50-25:49) 

"We should size them such that they cannot hurt the overall fund should we get something wrong." How GMO sizes its positions in alternative strategies. (25:50-27:33) 

Alpha, beta, and decay: How GMO assesses an alternative strategy's vulnerability to being arbitraged away. (27:34-29:57)

GMO's Bearish U.S. Equity Forecast
"How do I get paid for owning this asset?" Key inputs to GMO's U.S. equity forecast--multiple, margin, yield, and growth. (29:58-32:08)

"A behavioral self-defense mechanism." How GMO's approach to forecasting helps to structure its thinking and anchors decision-making. (32:09-34:54)

"It's really valuation where we've been most wrong." Where GMO's U.S. equity forecast erred in recent years. (34:55-36:01)

"We have to wear that. We have to own it." Montier on steps that GMO has taken to introspect on its forecasting error and how that expresses itself in the way it makes decisions and manages money. (36:02-39:45)

Planning Amid a Dearth of Value
"A reach for yield in any way, shape, or form." Explaining the dearth of value. (39:46-41:43)

"We have always been pretty bad at (forecasting), and it's unlikely we're going to get a lot better." (41:44-44:37)

How should investors and advisors forecast asset-class returns and plan for the future? (44:38-47:25)

Capital Allocation
Montier on the folly of firms borrowing to repurchase shares: "The more stable the environment, the easier it is to take on leverage, but the greater the danger that taking leverage creates further down the line when you get some random shock." (47:26-50:49)

Bogleheads On Investing Podcast
Bogleheads On Investing Podcast
bogleheads
Episode 029: Frazer Rice, host Rick Ferri
Frazer Rice is the author of “Wealth, Actually: Intelligent Decision-Making for the 1%”, host of the “Wealth, Actually” podcast, creator of the "Wealth, Actually" blog, and a Northeast Regional Director for Pendleton Square Trust Company. Frazer is an attorney and experienced trust officer. His wealth management career has included serving for over 15 years as a Managing Director at Wilmington Trust Company. We cover a lot of ground in this episode including estate planning, reasons for using trusts, selecting trustees, family dynamics, investing for 1%'ers, and much more! This podcast is hosted by Rick Ferri, CFA, a long-time Boglehead and investment adviser. The Bogleheads are a group of like-minded individual investors who follow the general investment and business beliefs of John C. Bogle, founder and former CEO of the Vanguard Group. It is a conflict-free community where individual investors reach out and provide education, assistance, and relevant information to other investors of all experience levels at no cost. The organization supports a free website at Bogleheads.org, and the wiki site is Bogleheads® wiki. Since 2000, the Bogleheads' have held national conferences in major cities around the country. There are also many Local Chapters in the US and even a few Foreign Chapters that meet regularly. New Chapters are being added on a regular basis. All Bogleheads activities are coordinated by volunteers who contribute their time and talent. This podcast is supported by the John C. Bogle Center for Financial Literacy, a non-profit organization approved by the IRS as a 501(c)(3) public charity on February 6, 2012. Your tax-deductible donation to the Bogle Center is appreciated.
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J. David Stein
Is Student Loan Forgiveness A Good Idea?
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24 min
WEALTHTRACK
WEALTHTRACK
Consuelo Mack
The Narratives Driving Stock & Real Estate Prices [2021]
We have a special treat for you. Robert Shiller, a _Nobel Prize-winning economist_, a pioneer in the field of behavioral finance, long-time Yale professor, financial innovator, and prolific author. Shiller is also the co-creator of the widely cited gauge of U.S. housing prices, the Case-Shiller Home Price Index, and creator of the cyclically adjusted PE ratio known as the Cape Ratio which is a price-earnings ratio for the S&P 500 based on average inflation-adjusted earnings from the previous ten years. Because it includes ten years of earnings many consider it to be a more reliable gauge of market value. His presence could not be more timely. He is known for identifying the tech and housing bubbles long before anyone else did, and here we are in the midst of an economy crushing pandemic with home prices booming and stock prices hitting new records.  We started with the stock market, his analysis of the record-setting performance. WEALTHTRACK # 1728 broadcast on January 08,2021 More info: https://wealthtrack.com/nobel-laureate-economist-robert-shiller-explains-the-narratives-driving-stock-and-real-estate-prices/ Links to Books mentioned: Narrative Economics: How Stories Go Viral and Drive Major Economic Events:  _https://amzn.to/3byPtbJ_ Irrational Exuberance: _https://amzn.to/38wq9RL_ Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism: https://amzn.to/2JWdGNu --- Support this podcast: https://anchor.fm/wealthtrack/support
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Sound Investing
Sound Investing
Paul Merriman
How do you invest in retirement when interest rates are so low? And 7 other important questions.
Paul introduces Don McDonald, Co-Founder of  Vestory Investment Advisory and co-host of "Talking Real Money" podcast, who will be producing “money minutes” for most of our podcasts. Don also produced the soon-to-be-released audio version for our latest book, We’re Talking Millions!. Paul discusses the upcoming Retiremeet America 2021 free online conference on Feb. 20, 8:00 a.m.-1:00 p.m. PT. See the list of speakers, topics, speaking times and registration form at https://retiremeet.com  Paul and David Booth, Co-Founder of Dimensional Fund Advisors, are keynoting the conference. Before addressing the Q&A's Paul discusses an article, “Deep Risk in the United States of America,” by Ben Carlson. Ben is on Paul’s list of Truth Tellers and highly recommends Ben's articles and podcasts at https://awealthofcommonsense.com/. * Larry motivates Paul to discuss the question: What changes should a pre-retiree make to their portfolio when they have saved enough to retire, even though they are planning to work longer? 19:00 * What asset allocation should I have when I reach retirement but don’t need the money to live on? 23:40 * How would you suggest someone who is currently in cash get back into the market? 31:22 Don McDonald’s “Talking Real Money” — The risks in owning bonds * With bond yields so low do you expect retirement returns to be significantly lower than in your tables?  38:57 * In a recent newsletter we mentioned a presentation by Barry Schwartz, author of The Paradox of Choice. The focus of the presentation was what happens when people are offered too many choices. We linked to a college presentation that got into other topics not of interest to us.  Here is a shorter presentation and very popular TED Talk with over 15 million views: https://www.ted.com/talks/barry_schwartz_the_paradox_of_choice?language=en   45:10 * In your 2012 book, First Time Investor, you were not in favor of target date funds. What has changed that you now recommend them? 60:40 * Do you really think the S&P is going to beat Berkshire Hathaway over the next 10 years? 57:45 * I know an investment advisor who made 29% a year over the last 2 years and he has all of his own money in the portfolio he wants me to use —individual stocks, not index funds. Is this investment philosophy a fool's errand and am I falling for a siren’s song? 1:06:35
1 hr 21 min
Financial Decoder
Financial Decoder
Charles Schwab
2021 Market Outlook: What to Expect from the Economy, the Bond Market, Global Equities, and Washington
In this year-end bonus episode, Schwab experts look ahead to consider what investors might expect in 2021. First, Mark talks with Liz Ann Sonders, Schwab’s chief investment strategist. Liz Ann offers her perspective on the direction of the U.S. economy and stock market. Vaccines represent a light at the end of the tunnel, but Liz Ann cautions that we will enter 2021 still in the tunnel. Next, Mark speaks with Kathy Jones, Schwab’s chief fixed income strategist. Kathy looks at what bond investors might expect from the Federal Reserve and fixed income assets in the new year. Then, Jeffrey Kleintop—Schwab’s chief global investment strategist—joins the show and examines what 2021 might hold for the global economy and markets. Finally, as a busy election season winds down, Mike Townsend, Schwab’s vice president of legislative and regulatory affairs, offers his outlook for what to expect in politics and policy next year. Subscribe to Financial Decoder for free on Apple Podcasts or wherever you listen. Financial Decoder is an original podcast from Charles Schwab. For more on the series, visit schwab.com/financialdecoder. If you enjoy the show, please leave a ★★★★★ rating or review on Apple Podcasts. Important Disclosures: The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Supporting documentation for any claims or statistical information is available upon request. The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party. Diversification and rebalancing a portfolio cannot ensure a profit or protect against a loss in any given market environment. Rebalancing may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events may be created that may affect your tax liability. Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve. Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data. Investing involves risk including loss of principal. Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance. Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Lower rated securities are subject to greater credit risk, default risk, and liquidity risk. Tax-exempt bonds are not necessarily a suitable investment for all persons. Information related to a security's tax-exempt status (federal and in-state) is obtained from third-parties and Schwab does not guarantee its accuracy. Tax-exempt income may be subject to the Alternative Minimum Tax (AMT). Capital appreciation from bond funds and discounted bonds may be subject to state or local taxes. Capital gains are not exempt from federal income tax. International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. For more information on indexes please see www.schwab.com/indexdefinitions. Apple Podcasts and the Apple logo are trademarks of Apple Inc., registered in the U.S. and other countries. Google Podcasts and the Google Podcasts logo are trademarks of Google LLC. Spotify and the Spotify logo are registered trademarks of Spotify AB. (1220-0XBU)
41 min
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