Monday, November 3, 2008

Hussman on Value Dinosaurs

John Hussman this week points out that 3 month bills have matched the S&P500 for ten years with considerably less volatility. He also notes Buffett and Grantham and Neff are dipping there toes in for value. That is not bad company swim with.

In my view, we are entering an environment that provides good conditions for value-based stock selection, because the speculative garbage has been increasingly shown to be exactly that. I also expect that we will be able to accept a much more typical exposure to market risk in the next market cycle than we were able to take in the recent one.

For anyone with a sense of long-term market history and an understanding of what drives sustainable long-term investment returns (as opposed to the ephemeral type we've seen in recent years), current valuations are like old friends. That's why “value dinosaurs” like Warren Buffett, Jeremy Grantham, and John Neff have come out of what seemed like extinction. Grantham recently noted that he is “filtering money in slowly” because, as he puts it, “If stocks are attractive and you don't buy, you don't just look like an idiot, you are an idiot.”

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