Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system and it is not functioning properly.

Jeremy Grantham

Categorized in : Mean Gone Competition

Investment bubbles and high animal spirits do not materialize out of thin air. They need extremely favorable economic fundamentals together with free and easy, cheap credit, and they need it for at least two or three years. Importantly, they also need serial pleasant surprises in such critical variables as global GNP growth.

Jeremy Grantham

air animal years

Remember that history always repeats itself. Every great bubble in history has broken. There are no exceptions.

Jeremy Grantham

exception broken remember

Americans are just about the worst at dealing with long-term problems, down there with Uzbekistan, but they respond to a market signal better than almost anyone. They roll the dice bigger and quicker than most.

Jeremy Grantham

uzbekistan dice long

Market timing, by the way, is a tag some buy-and-hold investors use to put down anything that involves using your brain. These are the same people who like to watch the locomotive coming and get run down in the name of discipline.

Jeremy Grantham

using-your-brain names running

Everyone asks about gold. This is the irony: just as Jim Grant tells us (correctly) that we all have faith-based paper currencies backed by nothing, it is equally fair to say that gold is a faith-based metal. It pays no dividend, cannot be eaten, and is mostly used for nothing more useful than jewelry. I would say that anything of which 75% sits idly and expensively in bank vaults is, as a measure of value, only one step up from the Polynesian islands that attached value to certain well-known large rocks that were traded.

Jeremy Grantham

rocks gold islands

Volatility is a symptom that people have no idea of the underlying value-that they have stopped playing the asset game. They're not buying because it's a company with certain attributes. They're buying because the price is rising. People are playing games not related to any concept at all of what the long-term value of the enterprise is. And they know it.

Jeremy Grantham

playing-games long ideas

I believe the only things that really matter in investing are the bubbles and the busts

Jeremy Grantham

investing matter believe

Battering down solar cells on the roofs of Wal-Marts in California. I think that will be some of the highest-return investments that anyone ever makes.

Jeremy Grantham

california cells thinking

You don't get rewarded for taking risk; you get rewarded for buying cheap assets. And if the assets you bought got pushed up in price simply because they were risky, then you are not going to be rewarded for taking a risk; you are going to be punished for it.

Jeremy Grantham

investing risk buying

The individual is far better-positioned to wait patiently for the right pitch while paying no regard to what others are doing, which is almost impossible for professionals.

Jeremy Grantham

individual waiting impossible

Although value is a weak force in any single year, it becomes a monster over several years. Like gravity, it slowly wears down the opposition.

Jeremy Grantham

weak monsters years

The investment business has taught me – increasingly as the years have passed – that people, especially investors (and, I believe, Americans), prefer good news and wishful thinking to bad news; and that there are always vested interests to offer facile, optimistic alternatives to the bad news.

Jeremy Grantham

optimistic believe thinking

The stock market is overpriced. Everything is overpriced. Junk is king.

Jeremy Grantham

junk kings

We live on a finite planet. We have finite resources, and we're running out of good, arable land.

Jeremy Grantham

resources land running

The language "it's too late" is very unsuitable for most environmental issues. It's too late for the dodo and for people who've starved to death already, but it's not too late to prevent an even bigger crisis. The sooner we act on the environment, the better.

Jeremy Grantham

environmental issues people

Capitalism believes that its remit is exclusively to make maximum short-term profits.

Jeremy Grantham

profit term believe

The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value. We all need to adjust our behavior to this new environment. It would help if we did it quickly.

Jeremy Grantham

helping world needs

It is better to be lucky than good, but of course appropriate to aspire to both.

Jeremy Grantham

aspire courses lucky

Some societies are also more optimistic than others: the U.S. and Australia are my two picks Tell a European you think there’s a housing bubble and you’ll have a reasonable discussion. Tell an Australian and you’ll have World War III. Been there, done that!

Jeremy Grantham

optimistic war thinking

There is no single theory that is used in economics that considers the finite nature of resources. It's shocking.

Jeremy Grantham

economics used theory