I can't tell you how surprised, even embarrassed I was to get the Nobel Prize in chemistry. Yes, I had passed the dreaded chemistry A-level for 18-year-olds back in England in 1958. But did they realize it was my third attempt? And, yes, I will take this honor as encouragement to do some serious thinking on the topic. I will also invest the award to help save the planet. Perhaps that was really the Nobel Committee's sneaky motive, since there are regrettably no green awards yet. Still, all in all, it didn't seem deserved. - Jeremy Grantham from the 3Q09 Letter
Rational Expectations and Efficient Markets
Rational expectations and the efficient market hypothesis are as dead as dodos, yet their baleful and painful influence lives on...
...[investment] committee members by and large buy into the idea that portfolio composition should not change and should be fixed as closely as possible to the policy benchmark, which certainly would make sense in that parallel universe where markets really are efficiently priced. This means that you cheerfully own just as much equity in 2000 at 35 times earnings as you did in 1982 at 6 times. This is not a good idea unless you derive enormous personal utility from a display of discipline, perhaps better viewed as inflexibility in this case. - Jeremy Grantham from the 3Q09 Letter