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June 15, 2012

Being patient is also financially beneficial!

Jeremy Grantham is the co-founder and Chief Investment Officer for Grantham Mayo Van Otterloo (GMO). He helps manage about $100 billion & he’s probably one of the great asset allocators in the game.  An article in the June 15th of The Wealth Advisor Weekender caught my eye. The discussion about Jeremy Grantham included the following quote:

“…The market can stay irrational longer than the client can stay patient.” Over the years, our estimate of “standard client patience time,” to coin a phrase, has been 3.0 years in normal conditions. Patience can be up to a year shorter than that in extreme cases …. “

I have previously commented on static.  That is the talking points, highlights in the media, etc. are used to increase readership and/or audiences.  Fear seems to be what they look for.  Increasingly the positives are short stories on the back pages, at the end of an article or not covered.

Have you noticed that amounts are often used when the percentage change is a small amount.  Many articles and stories will include amounts and percentages.  This can be a clue to an article that can be ignored.  When they use the number, it is often to exaggerate a change.  Some articles may use the word “most” (or a similar word) when reporting on surveys.  The most may be 38% when the other responses are 36% and 26%.  Other factors about surveys may not be given.  Even if they indicate the number of people surveyed they do not give how the  population surveyed was picked.  Did they pick rural or urban areas?  Did they pick larger cities or smaller towns.  If it was a national survey how did they determine how many people in each state would be picked?

As you read or listen to various sources, try to look beyond what is being said an identify what is not being said.  If it is an interview, determine if responses were complete  and candid response to what was being asked.

The above is important in trying to understand how what you read and hear impacts your investments.  Also try to see how often the market reacts the way you thought it would.  Other respective investment mangers take a long view.

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