Sunday Morning Coffee

The Barron's interview was with Jeremy Grantham and had some great nuggets--I then add a little to his comments.

Long-term returns of the U.S. market, if you take out dividends, is 1.8% real. If the market ticked along at 1.8%, which is its fair value, no one would make any money. Goldman Sachs would be a quarter as big as it is. Big investment firms love big, hairy bull markets and delicious crashes so they can design and sell more instruments.

The above is a tie in to the theme that Wall Street firms take advantage of the investing public. While this is probably true I don't know if there is a way to quantify it. I take this as a call to avoid expensive broker products, stick to portfolios of individual issues and ETFs and allow yourself to think independently about how to navigate market cycles. There has to be a reason why the usual perma-bulls are permanently bullish so do not buy what they are selling.

This is a business-as-usual overpriced market, and you'll get a zero return for seven years. So you should be able to get the return by going overseas or hiding in U.S. blue chips. If you have a fairly long horizon, like a seven-year horizon, you will do fine, and that's the only thing that matters.

I write a lot about investing over the course of the entire stock market cycle or longer. For most people the real goal is simple having enough when they need it which makes 2012's result meaningless. I clued into this from John Hussman and became a believer based on my experience as a portfolio manager. Long term outperformance compounds to benefit the portfolio and help with the objective of trying to have enough when you need it.

(Timber has) always been my favorite, but it doesn't make any sense unless you can think ahead 10 years or longer.

Another example of the importance of thinking long term even if you have no interest in timber.

The really bad news is that the 2% I thought we would have during the seven lean years is perhaps very close to what the long term will be, even after the seven years are up. It isn't clear to me that the developed world will grow faster than 2%, mainly because of the population, but also because we have caught up with each other.

This is a long term idea about where to allocate capital. While some studies conclude that there is no correlation GDP growth and stock market results, I have said before that the 2000s would seem to refute that conclusion and I also believe it is logical that a country with a better balance sheet and more attractive growth factors would seem to have better chance for stock market success than an over indebted slow grower.

I am aware of the confirmation bias in my gravitating to these points. I have been investing along these lines for a while now (and writing about it) but clearly I was not the first person on any of this. These are what I think of as being obvious long term themes and believe the results offered by these themes continue to justify the exposure.