One of the World’s Most Respected Analysts Tells You What He Has Learned In The Last 18 Months

Posted by James Grant via Michael Campbell

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JAMES GRANT: What have we learned? Nothing. Oh, people are chastened, but the chastisement fades with the opportunities for a new cycle of improvement and of profit. That’s the way it is and always has been, and by the way, always will be, notwithstanding the fatuous promises of Washington that we will find the reforms to save us from ourselves. No, no. And I think that there’s a lot of talk about like the new normal. There isn’t any new. This is cycle upon cycle. It is always a little different, otherwise historians would have the money and otherwise, they have so little of it. It’s always different but it’s always essentially the same. We go from extreme to extreme. And there’s a wonderful book called Where Are the Customers’ Yachts ? by Fred Schwed Jr. It came out first in 1940. Schwed, a very funny man, wrote how to get rich. Are you listening?

CONSUELO MACK: I’m listening.

JAMES GRANT: What you do is you buy stocks when people say that there is no more hope for equities. Okay. You hold them. Then when people say the new upswing, that it’s a new era you sell them, don’t worry they’ll go higher, but don’t you pay attention. When they go back down again, repurchase them, repeat and you will die rich. Now that is glib, but essentially true.

I think for individual investors to remember is that Wall Street is not their friend. Wall Street will invite you to suspend common sense. It will invite you to believe there was no housing bubble and it will invite you to believe that Cisco Systems in March of 2000 was going to compound at 20% a year for the rest of time. I think for individuals it’s so important to retain common sense, to buy things when they do seem cheap, not to buy when you feel good.

One of my rules is never to buy. I have been accumulating gold for years. It’s my hobby horse and obsession I guess to a degree. I don’t own that much of it, but I’ve been buying consistently. And one of my rules was never to buy it when I really like it, but always to buy it when I begin to doubt the efficacy of the idea. Which pulls back- there’s no price earnings ratio, right? So I’ve trained myself to buy it when I’m worried about it and not when I’m happy about it. That’s a little homely example I think of what individuals might consider in their own lives too. The best professionals buy when they’re frightened and they’re convinced on the idea, but still it’s hard to implement because the world is against them. They’re human too, right? So–

CONSUELO MACK: And they sell when they’re optimistic?

JAMES GRANT: Yeah. And one final thing, so important. One of the best investors I know treats cash not as a thing that you do as an afterthought, but it’s a steady state. Cash gives you flexibility, gives you the means to exploit an opportunity that is presented to you through some discordant event in the world. You know, there’s a calamity overnight in Pakistan, in the cash that you have an opportunity. If you are living in the country and you have some cash and your neighbor has to sell an adjoining piece of land, then you have the flexibility. I think it’s an important thing always to have enough liquidity to seize the opportunities that Fred Schwed alluded to in his very funny way. The world is cyclical, that will never change, never mind these fake reforms instituted. It will be forever cyclical. And people with flexibility, with cash will be able to exploit those opportunities.


Grant’s Interest Rate Observer is an independent, value-oriented and contrary-minded journal of the financial markets. We publish 24 times a year. Our mission is to identify investment opportunities in a range of markets at both extremes of valuation, high and low alike. A typical 12-page issue is likely to contain a long idea, a short idea, a macroeconomic comment and a monetary or credit analysis (and, of course, one of our famous cartoons). Without bragging, we like to think that we are the financial-information medium that least resembles CNBC.