Rare Opportunities Not-Seen In 35 Years: Catherine LeGraw of GMO Reveals

Рет қаралды 9,614

3 ай бұрын

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Today's guest is Catherine LeGraw, a member of GMO’s Asset Allocation Team.
In today’s episode, Catherine explains why this is “the best relative asset allocation opportunity we’ve seen in 35 years," and “we are building portfolios with some of the highest forecasted relative and absolute returns we’ve ever seen." She explains where she sees opportunity around the world today, why she’s excited about deep value and quality, and how she’s thinking about the Magnificent 7.
To see links or read the transcript of the episode, visit us at mebfaber.com/2024/04/26/cathe...
(1:24) - Welcome to our guest, Catherine LeGraw
(1:35) - Why Catherine thinks this is “the best relative asset allocation opportunity ... in 35 years"
(7:54) - The Magnificent 7
(14:29) - The opportunity in deep value
(17:00) - The opportunity in foreign stocks
(20:28) - 7-Year Asset Class Forecast
(23:36) - Currency implications
(24:46) - The current state of bonds
(30:36) - Other interesting assets
(34:25) - More discussion on deep value
(34:49) - Catherine’s most controversial opinion
(36:54) - Catherine’s most memorable investment
(38:31) - What in Tarnation
Resources:
Record Highs…But We’re Still Excited www.gmo.com/globalassets/arti...
Magnificently Concentrated www.gmo.com/globalassets/arti...
GMO 7-Year Asset Class Forecast (Feb. 29, 2024) www.gmo.com/globalassets/arti...
Jump in the Deep End / GMO www.gmo.com/globalassets/arti...
What in Tarnation x.com/MebFaber/status/1357385...
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Пікірлер: 43

@martytayman9138 3 ай бұрын

Wow! That was fantastic. Catherine is one, very smart, person. Great repartee!

@danmcneil2940 2 ай бұрын

Am I the only one who rolls their eyes every time an active manager talks about how the tide is about to shift back active outperforming?

@navycruise 3 ай бұрын

Has anyone published a recent retrospective analysis of the accuracy of GMO's 7-Year Asset Class Forecasts? I know they've been making these public since well before the GFC, so that'd be interesting to see.

@igrowfaster 3 ай бұрын

Yes i've been following their research for the past 2 decades. Prior to the past decade, they were directionally correct in their forecast, but the raw numbers (the magnitude) were off; for example if they predicted that "X" would do better than "Z" by 10% per year (to use an extreme example), they were correct that X did better, but not necessarily by their forecasted 10%. However the past decade has been way off, with u.s. large cap consistently doing better than u.s. small cap. Also, I think their forecasts for EM have been way off primarily because they go strictly by valuation, and haven't been taking into consideration the changing investment climate in China (less business friendly). Like John Hussman, GMO did an excellent job of avoiding the internet bubble and investing aroud the tech wreckage of 2000- 2002. They built up a big following as a result of that, but it's a tough act to follow. Lastly, i'm not sure how they settled on 7 years as a timeframe; i think a decade would give them more time to see their forecasts play out.

@syncmeandroid 2 ай бұрын

Look on the Bogleheads forum; there are some discussions where they posted screenshots of GMO's 7-year forecast. They have basically been forecasting to stay away from US equity for 10 years. Like a broken clock, one day they'll be right for sure.

@ggttuuxx 29 күн бұрын

@@syncmeandroid You said as if the only single way to do well is to be in that one asset class that has been outperforming in the past 3 years, and all other avenues were poor. Investing based on looking back can often work, but it is lazy, imprudent and cannot scale to a billion dollar fund.

@jays9870 3 ай бұрын

Great discussion; thank you both for this

@jamesellis4899 3 ай бұрын

Love her insights

@jchinik9786 2 ай бұрын

This was an excellent review of the current situation and, along with some other GMO programs, helped me to tweak my portfolio more toward value and international value and just sit tight. Great analysis pointing out the tight credit spreads on corporates, I missed that. Also clean energy I forgot about but just looked at and took some positions. Thank you Catherine, please ignore any bozo comments, those are the folks who aren't open to contrarian ideas and will be wondering what happened to their portfolio in 5 years. Of course, they'll blame someone for their losses and not remember your insights!

@ryantinney 3 ай бұрын

Digging that hat Faber.

@evilzzzability 2 ай бұрын

This was a terrific listen for the value orientated investor

@Byron4tradition 2 ай бұрын

LeGraw's analysis is outstanding. She is a great thinker and communicator.

@navycruise 3 ай бұрын

What's the catalyst to drive 'deep value' equities toward 'fair value' in a world where active stock pickers are becoming less relevant market participants as funds (that would have historically been invested based on results of value-oriented security analysis) increasingly flow blindly into Mega Cap via passive index investments?

@scabu3 3 ай бұрын

Small cap silver and uranium miners!

@yanivpete 3 ай бұрын

"deep value" vs "shallow value" - I would've liked to hear how each of those segments are defined, and some examples of each.

@palamane1 3 ай бұрын

She said: deep value is the bottom decile (of value companies), and shallow value is the next decile up. It would have been more interesting to hear whether GMO allows companies with debt in either decile into their portfolios.

@irhumbled 3 ай бұрын

@@palamane1I think shallow was the 3 deciles below average not the 10-20 decile

@RafitoMembroza 3 ай бұрын

31:37 She said that clean energy stocks are deep value

@igrowfaster 3 ай бұрын

Citigroup, GM, Ford...a few of their deep value holdings. You can get tidbits of information from their mutual fund/ strategy pages. They are not tech averse; last year Meta (FB) was one of their top holdings. Shallow value = cheaper half of the market. Deep value = cheapest 20% of the market. If you can focus on the cheapest 10% or 5% of the market, even better. But they have a lot of money to manage, so they can't limit themselves to that.

@igrowfaster 3 ай бұрын

@@palamane1 Yes they do invest in companies that have debt. Exxon was one of their top holdings (for one of their strategies) last year. Exxon has debt, but what matters is that theyre steadily paying it down (deleveraging); paying down debt is an important means for mechanically lifting the stock price of a company, because it causes the cash flow to be freed up to go to the equity (instead of towards debt payment)-- that's what i mean by mechanical. Not too many companies around that don't have some debt; that's not a bad thing as long as you feel theyre capable of paying it down.

@kasmstamps1897 2 ай бұрын

Star Wars reference at 18:00 May the forth be with you. My strategy in 2008 was Buy 20 small stakes low. 6 went bust. 6 so so. 6 well. 1 really well. 1 that after 5years returned dividends of 50% each year for 10years. This year new strategy. From Mag7, which one do you think will be the first 100t cap combined with buy low sell high in 15years. What do you get when you multiply six by nine? Answer. 42 tsla.

@memphistennis1691 Ай бұрын

OK, that 490 equal weighted trade is actualy doable with fractional shares, but that is a LOT of mouse clicking. I just retired this month and I am rolling over a 457 B. I might just try this, because I agree the Mag 7 is WAY over vallued. 490 positions is a lot but it is not infinity. Maybe the S&P 100 minus Mag 7 might be more realistic, that is 93 positions.

@KK-pm7ud 2 ай бұрын

I hope Meb sent her dandelion chocolates as a thank you for a wonderful interview.

@memphistennis1691 Ай бұрын

Mr. Faber, how would the average investor actually pull off owning the bottom 490 stocks to gain that extra 3 points?

@ggttuuxx 29 күн бұрын

She just told you the best opportunities are outside of the SPY . Why do you insist on buying an over-valued market? Watch it again.

@kpduffy 2 ай бұрын

Corporate bond spreads are bottom decile historically vs. Treasuries for good reason: the creditworthiness of the U.S. government has declined dramatically over the past 10 years. Gold is breaking out in part for the same reason. Your guest totally misses this.

@memphistennis1691 Ай бұрын

I think maybe SPY will self correct the problem with concentration, Mega Cap growth (Meta, Apple, Tesla, etc) cratered after years of out performance for about a year, and then took off again this year, with Nvidia grafted on to the usual suspects. That still leaves it with a high average valuation as the young lady suggests. Personally, I plan to over weight new money into FEZ over SPY. I think Ms. Catherine might approve. I won't bore everyone with all my smart or stupid trades in individual equities. I think GMO is a bit hyperbolic with the claim of this being the best opportunity to outperform in 35 years. A bit of a sales pitch, would you say?

@user-xd9xy5yl9l Ай бұрын

Catherine's two flaws: (1) Because new technology gives outsize returns, tech is where you need to be, whether or not the Nasdaq is concentrated or expensive. Just avoid the nose bleed P/Es (2) "The market can stay irrational longer than you can stay solvent". So while Catherine is saying what _should_ work, real life does not work as per these Ph.D. type theories that look good on paper. The bottom line is you need to be in tech because tech is what drives progress in our world, and not worry much about valuations. It's more about interest rates, money printing, yield inversion, disasters, etc. that determines the markets and not so much valuations. *For the last two decades (and in the future), the average Joe that bought the usual FAANG stocks and tech stocks beat the hell out of all money managers and big names and even Warren Buffet.* Who made the same mistake: ignoring tech. PS. If you don't know that progress is mostly driven by tech, you haven't been living in our solar system :) Loved her comment on currencies reverting because they are at extremes.

@airbourne2 2 ай бұрын

Maybe all the govt regulations put in place since Sarbanes-Oxley has given larger companies an advantage.

@kunverjihirani276 Ай бұрын

😊👍🙏

@borakizilirmak 3 ай бұрын

i think she forgets who brings earnings, top caps are expensive but WHY? Because they bring the money...PERIOD.. btw I have deep value ETF in my portfolio and I am ready to rebalance it, only if doubles its representation from its lowest representation, never happened. she can't say why tech bubble popped? c'mon, it popped since there was no earnings...Earnings are everything

@scabu3 3 ай бұрын

Because everything was overvalued...like it is now