Value Investor Jeremy Grantham: Guarantees Gold will Crash

Original source: SimoleonSense.com .

Interesting insights and asset allocation predictions by one of the greats of investing.

Note this is a review of the recent CFA event also attended by Seth Klarman (notes of Klarman’s talk have been circulating the internet where as Grantham’s speech has gone under the radar)

Excerpt (via  Robert Huebscher @ Advisor Perspectives)

For this approach to work, one must have a clear idea of fair value and a way to determine when prices deviate from it.  Price-to-earnings ratios are one of the variables Grantham looks at to determine whether an asset class has deviated from its fair value. Specifically, he uses Shiller’s “normalized” PE ratios, which averages earnings over at least 10 years.  “PEs that are not normalized are worth nothing,” he said.

Using those PE ratios, Grantham regularly forecasts returns over seven-year time horizons, which he said was “as close as possible to the periodicity of the market.”  He has performed this exercise 28 times since 1994 – forecasting returns for major global asset classes – and claims that he has a perfect record of predicting returns using this “simple-minded” (his words) technique.

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