Montier: Was it all just a bad dream? Or, ten lessons not learnt

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James Montier, a member of GMO‘s Asset Allocation Team, examines whether we learned anything from the market declines of 2008 and early 2009. In this paper – his first since joining GMO from Société Générale – he outlines ten of the lessons he believes not to have been learned.

Here is the opening paragraph:

“It appears as if the market declines of 2008 and early 2009 are being treated as nothing more than a bad dream, as if the investment industry has gone right back to business as usual. This extreme brevity of financial memory is breathtaking. Surely, we should attempt to look back and learn something from the mistakes that gave rise to the worst period in markets since the Great Depression. In an effort to engage in exactly this kind of learning experience, I have put together my list of the top ten lessons we seem to have failed to learn. So let’s dive in!”

And the ten lessons:

Lesson 1: Markets aren’t efficient.

Lesson 2: Relative performance is a dangerous game.

Lesson 3: The time is never different.

Lesson 4: Valuation matters.

Lesson 5: Wait for the fat pitch.

Lesson 6: Sentiment matters.

Lesson 7: Leverage can’t make a bad investment good, but it can make a good investment bad!

Lesson 8: Over-quantification hides real risk.

Lesson 9: Macro matters.

Lesson 10: Look for sources of cheap insurance.

Click here for the full report. (Click through from the link next to Montier’s picture. Please note that a short registration is required.)

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1 comment to Montier: Was it all just a bad dream? Or, ten lessons not learnt

  • Thanks for this. The level of complacency and mis-reading in the markets and in general is just stunning right now. On a recent Tech Ticker one strategist complains that gov’t interference makes it impossible to know what’s next. There are two fundamental flaws with that, aside from the obvious one that gov’t intervention saved our axxes. It’s been helpful to me to think of the mkt/econ interactions on a structural, fundamental, technical and psychological 4-factor basis where the timeframes are very long, long, intermediate/short and very short. We are now in a policy-dependent and -driven environment because things are still so fragile (& therefore turbulent)which means deep structural factors are gyrating on a short-term frequency and will until the system stabilizes. To whine about that is to be blind and complacent.
    The second thing that goes with all that is that much of gov’t policy is as analyzable under it’s own logic and rules as anything else that concerns us but, on the whole, market players don’t bother and take it for granted. This is a very fragile, exposed and dangerous environment made more so by failure to take and apply Montier’s Lessons.
    Chaos, Turbulence and Policy: Market Lookback, Outlook & Risks ,
    Policy-dependence, Transitions and Turbulence: Market and Economy in the New Normal and Welcome to Murphy’s World: Markets, Economies, Policy & Fragilities for some backup, machinery and guestimates if you like.

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