GMO: The Last Hurrah and Seven Lean Years – Jeremy Grantham
First, let me lament the loss of near certainties in investing. The financial and economic collapse that I described as “the most widely predicted surprise in the history of finance” about 18 months ago is behind us. More precisely, we believed that bubbles had formed in global profit margins, risk premiums, and U.S. and U.K. housing prices, and that all three were “near certainties” to break, with severe consequences for the economic and financial system. All have thoroughly burst and are in their overcorrection phase with the single exception of U.K. house prices, which I’m confi dent will do their duty. Normally there are, of course, no near certainties in investing. Life is not meant to be that easy. Asset allocators have been blessed in the last 10 years with a large collection of extraordinary outliers. As my favorite quote by Mandelbrot (1983) says, “Even though economics is a very old subject, it has not truly come to grips with the main difficulty, which is the inordinate practical importance of a few extreme events.”
