Oregonrain

Buffett, Grantham and China: What the Savers Are Buying

I liked this article in that it tries to talk about two of the best value investors of our time. But as is typical, Buffett gets all the ink and Grantham is like "who."

Grantham is someone I have started to follow very carefully. He has a quarterly newsletter that goes out for free. All you have to do is put your name on the list. I highly recommend that as well. gmo.com

All in all Grantham has been talking for at least two years about what I believe are the three big issues of our time. First even before things got bad he said we were in the "first worldwide all asset class bubble" and that no one had the guts to call it like it was let alone stand up and "pop" the bubble early on. In this regard he zeros in on Greenspan. He is old school (as am I) and see the traditional role of the central banker to be to "take the punch bowl away just as the party starts to get really fun." In this situation the "rational market" ideology of the Fed chair prevented this.

Next he has talked about what I consider to be the great "group think" or as Grantham describes it.."people were paying more and more to take on more and more risk." This of course is the exact the opposite of how markets should function.

He described how "career risk" among CEO's and others also accelerated the bubble. I call this simply "lack of leadership."

Remember this is a guy who called it to a tee. A bit early yes...but like Buffett he would concede that value investors are not great market timers. Now he says that the market is getting close to fair value. But...he also says that in most bubbles things tend to "over correct" before they "revert to the mean."

If you start to do a top down analysis and believe that expected earnings in the S&P are still to rosy..you can at the low end expect total earnings in the S&P in 2009 to be around $50.00 and a PE of somewhere between 10 - 15 that would put a bottom in at between where we are now...750 and a low of 500. That is where Grantham is as well.

Now all you have to do is pick how much risk you want to take on to make how much gain. Above all you need to be very patient and not blink.