Jeremy (Grantham) Spoke

With apologies to Pearl Jam the quarterly letter from Jeremy Grantham is out and as usual it is interesting and thought provoking. There was one particular tidbit that stuck from the usual Malthusian content as follows;

For my Foundation (i.e., personally as opposed to institutionally where, reasonably enough, we cannot impose 10-year plus horizons on our clients)...

This was taken from page 15 of the PDF so you can read it to get the full context but he is saying that for his money he is thinking in ten year terms not quarterly or annually and he is acknowledging that his firm's clients do not/can not think in ten year terms.

If you can get on board with the fact the Grantham knows more about investing than most of us and he is telling us that he thinks in very long time frames then this should be very thought provoking. Obviously this is for investors as opposed to traders.

A recurring theme on this site has been that for most investors, if they really think about it their real goal for their investing is simply to have enough money when they need it. I come to this conclusion as a product of my experiences with markets, my observations of other peoples' experience with markets and my general perceptions of peoples' emotional quirks and tolerances. Obviously the Grantham quote is intellectually appealing as I think it supports my conclusion.

For people who manage their own portfolios there is obviously no other constituency that you need to worry about. You are very unlikely to know how you've done in some random past quarter or maybe even year without looking but you probably do know that for the last five years the S&P 500 is down a little and you probably know where you stand in relation to that. For people who are at the point where their portfolio is supplementing their income then I think the goal shifts slightly from having enough when you need it to being able to maintain it for as long as you need it.

To the extent this rings true for anyone reading this post, a focus that orients to the long term allows for a more suitable investment choices because there would be no extra trades that focus on having a good quarter. It also allows for better risk management as there is less need to chase something that is hot to make a good quarter.

It can be difficult psychologically to embrace this line of thinking. I can tell you first hand that plenty of investors feel the need to think in three or 12 month time frames but that is arbitrary. If a year was 11 or 14 months then they would think in those time frames; arbitrary.

You may not want to listen to me on this but maybe you will listen to Grantham.