INVESTMENT PARALYSIS
In his most recent article, Jeremy Grantham describes seemingly reasonable people, armed with
terrifyingly accurate data, foretelling of the end of the world. Investors with lots of cash become inert
objects, mired in cement, and too terrified to invest. Those investors who are fully invested move
from fear to denial and finally to panic, at the end becoming catatonic.
Grantham encourages all investors, before rigor mortis sets in, to evaluate where they currently are,
where they want to be, and how they can get there. A clear “battle plan”, developed by taking
motivation from both your head and your stomach, he says, should clear the way for investors to
overcome “investment paralysis”.
Grantham calculates the “fair value” of the S&P500 at 900, approximately 30% above where the
index sits now. Although he believes that the index has a 50/50 chance of dropping below 600, he
also thinks that many stocks and funds will post a double digit return per year above inflation for the
next seven years. This might not be the absolute bottom of the market, but it is so close to a bottom,
prudent investors are now investing.
- RKM
