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Ten quotes from a world-leading long term investor

“This time it’s different are the four most dangerous words in the English language”, according to well-respected finance expert Jeremy Grantham. His firm manages over ¬£100 billion of other people’s money.

Grantham appears different from most asset managers in that he is said to take a longer term view and, according to Wikipedia:

“Grantham has built much of his investing reputation over his long career by correctly identifying speculative market “bubbles” as they were happening and steering clients’ assets clear of impending crashes”.

So, a wise chap, it would seem. His view is that resource depletion is the best way to discuss sustainability issues and potential future constraints. He also believes the next ten years will be the decade to invest in commodities, since prices will only go upwards.

This New York Times magazine profile of him and his views makes excellent reading.

Here are some extracts:

1) Energy “will give us serious and sustained problems” over the next 50 years as we make the transition from hydrocarbons – oil, coal, gas – to solar, wind, nuclear and other sources, but we’ll muddle through to a solution to Peak Oil and related challenges. Peak Everything Else will prove more intractable for humanity.

2) Agriculture is more worrisome. Local water shortages will cause “persistent irritation” – wars, famines. Of the three essential macro nutrient fertilizers, nitrogen is relatively plentiful and recoverable, but we’re running out of potassium and phosphorus, finite mined resources that are “necessary for all life.” (he rates soil erosion as the biggest threat of all)

3) The late-18th-century doomsayer Thomas Malthus pretty much got it right but just had the bad timing to make his predictions about unsustainable population growth on the eve of the hydrocarbon-fueled Industrial Revolution, which “partially removed the barriers to rapid population growth, wealth and scientific progress.” That put off the inevitable for a couple of centuries.

4) On the positive side: “We humans have the brains and the means to reach real planetary sustainability. The problem is with us and our focus on short-term growth and profits, which is likely to cause suffering on a vast scale. With foresight and thoughtful planning, this suffering is completely avoidable.” While it may be too late to “gracefully” deal with depleted resources¬≠, climate change and related crises, it’s never too late to mitigate the damage.

5) Modern capitalism isn’t equipped to handle long-range problems or tragedies of the commons (situations like overfishing or global warming, in which acting rationally in your own self-interest only deepens the harm to all).

6) The best approach may be to recast global warming, which depresses crop yields and worsens soil erosion, as a factor contributing to resource depletion. “People are naturally much more responsive to finite resources than they are to climate change,” … “Global warming is bad news. Finite resources is investment advice.”

7) “Americans are just about the worst at dealing with long-term problems, down there with Uzbekistan,” he said, “but they respond to a market signal better than almost anyone.”

8) “There’s an 80-20 overlap between sensible behavior on resource limitation and sensible behavior on climate change”.

9) Corporations respond well to this message because they are “persuaded by data,” but American public opinion is harder to move, and contemporary American political culture is practically dataproof.

10) “I have no doubt we’re going to have a bad hundred years. We have the resources to gracefully handle the transition, but we won’t. We apparently can’t.” … “But it’s never absolutely too late,” Grantham said. “It’s never too late to do what we can”.

For the full piece, go here.

One of Grantham’s more recent notes to investors, with detail on long and short term financial/environmental plays, is here.

This interview with Paul Gilding and Thomas Friedman may also be of interest.

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