The Boston Globe profiles philanthropy by leading investors. Jeremy Grantham’s foundations, including the $377 million Grantham Foundation for the Protection of the Environment, reflect a movement toward “making big bets on social change philanthropy,” according to Paul Grogan of the Boston Foundation. This is a shift apparent in Grantham’s own remarks: he noted that giving to traditional recipients of philanthropic dollars (such as arts and medical institutions) is “better than nothing. But it isn’t as good as medical research, or more to the point even, critical environmental donations.” Seth Klarman of the Baupost Group is another example of civic and community giving. The Globe says he “brings his penchant for contrarian investing to his charitible efforts: put money into areas few others are betting on and see potentially big gains, rather than follow the crowd.”
Much of the philanthropy of financial services leaders is “below the radar,” according to Grogan. Jonathan Jacobson, for example, is described by the Globe as “the most publicity shy” of the profiled philanthropers. His Jacobson Family Foundation Trust controlled $384 million as of 2012 and focuses on education, child welfare and Jewish causes.
These investment leaders also represent a trend of focusing more on philanthropy than their own wealth once a certain level of success is attained, according to Paul G. Schervish of Boston College. A prime example may be Jeffrey Vinik who has been directing half his income to his foundation annually for the last decade. “As you get older, you hopefully have more time to think about this, and really concentrate on those issues that are most important,” Vinik said.
Ben Inker and Jeremy Grantham of Grantham, Mayo, Van Otterloo & Co. issued a quarterly letter suggesting the bull market cannot last much longer. Inker writes that the U.S. has been outperforming for decades but attacks the idea that US stocks are inherently superior even as they grow more expensive. “We cannot completely reject the possibility that those arguments are correct,” he says, “but the evidence seems pretty thin.” Grantham points to the need to address problems, saying: “we are dealing today with important issues, one so important that it may affect the long-term viability of our global society and perhaps even our species.”
In a recent Barron’s excerpt of a longer article, Jeremy Grantham, founder of asset management firm GMO, says Americans “have a broad and heavy bias away from unpleasant data” that makes us “ready to be manipulated by vested interests in finance, economics, and climate change, whose interests might be better served by our believing optimistic stuff ‘that just ain’t so.'”
He points to a few examples of propositions that are “widely accepted by an educated business audience . . . but totally wrong.” His examples include the widely held business audience assumption about “how incompetent at business the French are and how persistently we are kicking their bottoms.” The data, Grantham says, show the opposite: France’s median hourly wage is up 180% in 45 years; the U.S median wage is flat over that same period. He also points to the death rate among whites age 45-54: “since 1990 there has been a quite remarkable decline for other developed countries,” but “for U.S. whites there is a slight increase . . . caused by quite severe increases in deaths related to alcoholism, drug use, and suicides.”
Perhaps most importantly, Grantham challenges the business audience’s conception of growth as potentially perpetual: “it is also obvious how reluctant everyone is to accept the natural mathematical limits.” He says, “there simply cannot be compound growth in a finite world,” observing that “a modest 1% growth compounded for the 3,000 years of Ancient Egypt’s population would have multiplied its economic output by nine trillion times!” Pointing to “the improbability of feeding 10 billion or so global inhabitants in 50 years,” he argues that “the entire economic and political system appears eager to encourage optimism on resources for it is completely wedded to the virtues of quantitative growth forever.”
Finally, Grantham hopes “you may be a little more aware of how dangerous our wishful thinking can be in investing and in the much more important fields of resources (especially food) limitations and the potentially life-threatening risks of climate damage.” He observes that “wishful thinking and denial of unpleasant facts are simply not survival characteristics.” One example: population growth and water shortage linked with climate change have played a role in destabilizing Syria. Grantham asks us to “become more realistic, more willing to process the unpleasant, and, above all, less easily manipulated through our need for good news.” In the realm of climate politics, he suggests we must “at least include a price on carbon” and any suggestion otherwise is disingenuous. In arguing that we wait for better solutions, he contends, the vested interests profiting from a carbon-intensive economy have “‘wait’ as their main purpose, not ‘solutions.'”
One of the keys to successful investing is knowing the difference between long-term trends and short-term disruptions. That’s what Validea CEO John Reese says, and he says investors who can do that can take advantage of some opportunities in food-related stocks right now.
While food prices are down globally over the past year, the factors pushing them lower – Russia’s embargo of US products, China’s slowdown, bird flu fears, and the strengthening dollar – are all relatively short-term factors, Reese says in his latest Forbes.com column. Longer-term trends point toward higher food prices, however, he contends. Growing world population, increasing middle classes of emerging countries, stressed water supplies, and climate issues all should put upward pressure on food prices over the long run, he says, referencing some of the work that top strategist Jeremy Grantham has done on this issue.
“Grantham sees all of this leading to higher food prices over the long-term. While food companies’ profits depend on a number of factors, higher food prices should in general help food producers,” Reese says. “Investors, however, have been more focused on the shorter-term issues I mentioned above, causing many food-related stocks to fall in recent months. That should be creating long-term opportunities, and investors who can identify fundamentally sound food stocks have the chance to make some nice gains over the long haul.”
Reese examines a handful of food stocks that his Guru Strategies, investment models that are based on the approaches of Warren Buffett and other great investors, are high on right now, and which could benefit from the long-term food industry trends. Among them: Fresh Del Monte Produce.
What’s on Jeremy Grantham’s mind? Ten things, and in his second quarter letter, the renowned value investor lays out the lot of them.
As usual, Grantham’s areas of interest go far beyond those of most investment managers. Here, from Barron’s, which published his letter, is his list of the 10 things that “really matter”:
- Pressure on gross domestic product growth in the U.S. and the balance of the developed world
- The age of plentiful, cheap resources is gone forever
- Climate problems
- Global food shortages
- Income inequality
- Trying to understand deficiencies in democracy and capitalism
- Deficiencies in the Federal Reserve
- Investment bubbles in a world that is, this time, interestingly different
- Limitations of homo sapiens
Grantham talks about each one of these issues, many of which link back to #1 — struggling GDP growth. His discussion of natural resources and commodities is particularly interesting, as is his take on how the combination of misguided Federal Reserve policies and huge stock-option-heavy executive bonuses that are not linked to performance has negatively impacted GDP. “This pattern [of stock-option bonuses] has meshed very well with the policy of the current Fed regime – now internationalized – of encouraging higher stock prices so that the resulting wealth effect can help the economy,” Grantham says. “Since Greenspan’s early days, this has led to long, drawn-out six- to eight-year bull markets, interrupted with short bear markets. What could possibly be better for a stock option culture (as Andrew Smithers calls it)? In a decline, they rewrite their options. In a market advance, senior corporate officers cash in again and again, basically diluting stockholders’ value. They do this, all the time knowing that the Fed’s well-known asymmetry is on their side: Stumble and we at the Fed (and the Treasury, if necessary) will immediately help out – interest rate declines in early 2000 and 2008 and the giant 2008-09 bailouts are great examples – but succeed and we will not interfere, even in the midst of the most extreme housing or tech bubble.”
This, Grantham says, has led to companies spending most of their cash buying back their own stock rather than investing in their businesses. “And why should we be surprised?” he asks. “For how risky it is to build new factories and shake them down in a world where things can go wrong and corporate raiders lurk. How safe it is to buy your own stock and how likely that doing so will push prices higher, thus increasing option values (making it easier for CEOs to go from earning 40 times the average worker in 1965 to over 300 times today) and enlarging the Fed’s wealth effect at the same time!” The problem, he notes, is that such behavior leads to less corporate expansion; less GDP growth; lower job creation, and lower wages.
In GMO’s fourth-quarter letter, Ben Inker says the firm is finding better opportunities abroad than in the US, and Jeremy Grantham offers his thoughts on what’s going on with oil prices — and where they are headed.
While some have been raising the notion that stocks are in a bubble, top strategist and noted bubble identifier Jeremy Grantham doesn’t seem to be seeing one — though he does think stocks are significantly overvalued.