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GMO is a perfect example of HackerNews's cognitive bias towards cynical and pessimistic takes and thinking they signal intelligent commentary. GMO's assets und

GMO is a perfect example of HackerNews's cognitive bias towards cynical and pessimistic takes and thinking they signal intelligent commentary. GMO's assets under management have collapsed by well over 50% over the years as they've been consistently wrong about, well essentially everything, in the markets for 10+ years now. But they wrap up their pessimism in technocratic mumbo-jumbo so it sounds like an objective take and a certain kind of audience eats it up.

JohnJamesRambo 6y ago
Well if you read the article they mention these things. > Far more typically, I was three years too early in the Japan bubble. We at GMO got entirely out of Japan in 1987, when it was over 40% of the EAFE benchmark and selling at over 40x earnings, against a previous all-time high of 25x. It seemed prudent to exit at the time, but for three years we underperformed painfully as the Japanese market went to 65x earnings on its way to becoming over 60% of the benchmark! But we also stayed completely out for three years after the top and ultimately made good money on the round trip. It’s really really hard to call tops and bottoms but that doesn’t mean I just blindly invest no matter how irrational the market has become. Some of these things are just plain math, something Hacker News readers should be good at. > As a Model 3 owner, my personal favorite Tesla tidbit is that its market cap, now over $600 billion, amounts to over $1.25 million per car sold each year versus $9,000 per car for GM. What has 1929 got to equal that?
- viktorcode 6y ago
  >> As a Model 3 owner, my personal favorite Tesla tidbit is that its market cap, now over $600 billion, amounts to over $1.25 million per car sold each year versus $9,000 per car for GM. What has 1929 got to equal that? This example shows how shallow this analysis is. They totally ignoring shift to green energy and that Tesla is a participant in this market. They are also considering Tesla as just another carmaker in the market, not paying enough attention to the many core differences. GM in my view is as far anti-Tesla as you can get.
  - jgalt212 6y ago
    yes, but the question remains, what's more dissimilar TSLA / GM or $1.25M / $9K?
    - peteradio 6y ago
      buh buh tesla has musk aka ironman aka tony stark the most smartestest and handsome man in the whole wide world ... did i mention spacex ... im gonna get pornos on my phone from space now ... did you even consider that?
    - pinky1417 6y ago
      If I have to answer, I’d say $1.25MM vs $9k is more dissimilar than Tesla vs GM. But unless you believe that both Tesla and GM won’t grow sales, comparing market cap to cars sold in the last year(s) has only limited usefulness. If we assume Tesla will grow units sold while GM will remain about static AND we assume GM is fairly valued (while assuming unit margins are the same for both companies), then it tells us Tesla needs to sell about 140 times as many cars per year in the future to justify its current stock price. Now, if you assume Tesla’s cars will have a margin 4x as large as GM’s and that GM’s business is undervalued by half, then if my math is correct, Tesla needs to sell only 17 times as many cars per year ($1.25MM/4=$312k, $9k*2=$18k, $312k/$18k=17). That 17x increase doesn’t seem totally unreasonable. Of course, this also assumes that Tesla will make its money off of cars sold and not some other wild Muskian idea: if he develops world-beating self-driving software selling at 90% gross margins or wisely acquires other companies like Henry Singleton did at Teledyne, we could all be saying a $5 trillion market cap is cheap for Tesla in a few years! That said, as an investor, I wouldn’t buy today’s Tesla at even half its current stock price nor would I bet against Elon Musk (especially by shorting!). A lot of things have to go right for Tesla to justify its stock price; I just don’t have any way of predicting what Musk will do next!
      - paulmendoza 6y ago
        Tesla can capture more profit per car than GM has a chance to because Tesla doesn’t have third parties doing... - seats - selling - soon batteries - ai chip - soon insurance - charge stations is like if GM could own the gas stations This doesn’t even count the growth of the other product lines like utility grid storage and solar roof and Uber like services.
- bob33212 6y ago
  In 2000 AMZN was worth $500 per book sold each year and Enron was worth $.01 megawatt hour traded each year.
  - missedthecue 6y ago
    And both collapsed drastically shortly thereafter
nabla9 6y ago
They are right about high valuations in general. Their conclusion is just looking back and assuming future is same as before, with little to no reasining. What very high valuations mean is lower ROI in the future, only that. I'm 99% certain that Total Return (TR) from stock markets 2010-2020 >> 2021-2030. SP500 TR is 13.97% annualized for last 10 years (price return 11.64%). I'm surprised if it's above 5% annualized for next 10 years. That does not necessarily mean rapid decline in valuations (as bursting or crash). It can be stagnated stock market. It can be market boom that continues next 5 years and then fall back little above 2020 levels.
peterlk 6y ago
> and thinking they signal intelligent commentary Can you point out where in the writing their commentary is not intelligent? You seem to be attacking the author of this article but make no commentary about the weakness of their arguments. This makes me more inclined to believe them over you. I'm not saying you're wrong, but as someone who doesn't know much about the market, I do not see the implicit/obvious points that would prove the article wrong. Furthermore, being wrong in the past does not preclude someone from being right about the future, and vice versa.
- freddie_mercury 6y ago
  GMO's forecasts, and really the backbone of their entire investing philosophy, is that valuations will revert to historical averages. Valuations are a non-stationary process with no defined mathematical mean, so the entire concept of "mean reverting valuations" is nonsensical. Their entire investing philosophy isn't based on some deep understanding of the market but is simply an "end of history illusion" that the past (in this case the era in which the principals of GMO came of age) will continue unchanged indefinitely into the future. It isn't just they they've been wrong about US valuations and US returns. They've also been wrong about Emerging Market valuations and those returns. It can't just be handwaved away as "US investors went crazy for FANG and Tesla" because that only addresses half their failure.
fractionalhare 6y ago
> GMO's assets under management have collapsed by well over 50% over the years Do you have a source for this? It looks like they've been hovering at $64B discretionary AUM since 2014, and that hasn't changed through 2020. [1][2] All I could find was this article, which I think might be misleading. [3] It seems like it might be conflating GMO's total AUM with the AUM of its asset allocation business, but I'm not sure. 1. https://web.archive.org/web/20150408043537/http://www.gmo.com/America/ https://web.archive.org/web/20150408043537/http://www.gmo.co... 2. https://www.gmo.com/globalassets/documents---manually-loaded/documents/legalcompliance-footer/gmopart2adv4113finalforpdf.pdf https://www.gmo.com/globalassets/documents---manually-loaded... 3. https://www.google.com/amp/s/www.marketwatch.com/amp/story/investor-bail-on-granthams-gmo-as-assets-at-company-fall-by-44-billion-2017-01-09 https://www.google.com/amp/s/www.marketwatch.com/amp/story/i...
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JohnJamesRambo 6y ago

Well if you read the article they mention these things. > Far more typically, I was three years too early in the Japan bubble. We at GMO got entirely out of Japan in 1987, when it was over 40% of the EAFE benchmark and selling at over 40x earnings, against a previous all-time high of 25x. It seemed prudent to exit at the time, but for three years we underperformed painfully as the Japanese market went to 65x earnings on its way to becoming over 60% of the benchmark! But we also stayed completely out for three years after the top and ultimately made good money on the round trip. It’s really really hard to call tops and bottoms but that doesn’t mean I just blindly invest no matter how irrational the market has become. Some of these things are just plain math, something Hacker News readers should be good at. > As a Model 3 owner, my personal favorite Tesla tidbit is that its market cap, now over $600 billion, amounts to over $1.25 million per car sold each year versus $9,000 per car for GM. What has 1929 got to equal that?

viktorcode 6y ago
>> As a Model 3 owner, my personal favorite Tesla tidbit is that its market cap, now over $600 billion, amounts to over $1.25 million per car sold each year versus $9,000 per car for GM. What has 1929 got to equal that? This example shows how shallow this analysis is. They totally ignoring shift to green energy and that Tesla is a participant in this market. They are also considering Tesla as just another carmaker in the market, not paying enough attention to the many core differences. GM in my view is as far anti-Tesla as you can get.
- jgalt212 6y ago
  yes, but the question remains, what's more dissimilar TSLA / GM or $1.25M / $9K?
  - peteradio 6y ago
    buh buh tesla has musk aka ironman aka tony stark the most smartestest and handsome man in the whole wide world ... did i mention spacex ... im gonna get pornos on my phone from space now ... did you even consider that?
  - pinky1417 6y ago
    If I have to answer, I’d say $1.25MM vs $9k is more dissimilar than Tesla vs GM. But unless you believe that both Tesla and GM won’t grow sales, comparing market cap to cars sold in the last year(s) has only limited usefulness. If we assume Tesla will grow units sold while GM will remain about static AND we assume GM is fairly valued (while assuming unit margins are the same for both companies), then it tells us Tesla needs to sell about 140 times as many cars per year in the future to justify its current stock price. Now, if you assume Tesla’s cars will have a margin 4x as large as GM’s and that GM’s business is undervalued by half, then if my math is correct, Tesla needs to sell only 17 times as many cars per year ($1.25MM/4=$312k, $9k*2=$18k, $312k/$18k=17). That 17x increase doesn’t seem totally unreasonable. Of course, this also assumes that Tesla will make its money off of cars sold and not some other wild Muskian idea: if he develops world-beating self-driving software selling at 90% gross margins or wisely acquires other companies like Henry Singleton did at Teledyne, we could all be saying a $5 trillion market cap is cheap for Tesla in a few years! That said, as an investor, I wouldn’t buy today’s Tesla at even half its current stock price nor would I bet against Elon Musk (especially by shorting!). A lot of things have to go right for Tesla to justify its stock price; I just don’t have any way of predicting what Musk will do next!
    - paulmendoza 6y ago
      Tesla can capture more profit per car than GM has a chance to because Tesla doesn’t have third parties doing... - seats - selling - soon batteries - ai chip - soon insurance - charge stations is like if GM could own the gas stations This doesn’t even count the growth of the other product lines like utility grid storage and solar roof and Uber like services.
bob33212 6y ago
In 2000 AMZN was worth $500 per book sold each year and Enron was worth $.01 megawatt hour traded each year.
- missedthecue 6y ago
  And both collapsed drastically shortly thereafter

nabla9 6y ago

They are right about high valuations in general. Their conclusion is just looking back and assuming future is same as before, with little to no reasining. What very high valuations mean is lower ROI in the future, only that. I'm 99% certain that Total Return (TR) from stock markets 2010-2020 >> 2021-2030. SP500 TR is 13.97% annualized for last 10 years (price return 11.64%). I'm surprised if it's above 5% annualized for next 10 years. That does not necessarily mean rapid decline in valuations (as bursting or crash). It can be stagnated stock market. It can be market boom that continues next 5 years and then fall back little above 2020 levels.

peterlk 6y ago

> and thinking they signal intelligent commentary Can you point out where in the writing their commentary is not intelligent? You seem to be attacking the author of this article but make no commentary about the weakness of their arguments. This makes me more inclined to believe them over you. I'm not saying you're wrong, but as someone who doesn't know much about the market, I do not see the implicit/obvious points that would prove the article wrong. Furthermore, being wrong in the past does not preclude someone from being right about the future, and vice versa.

freddie_mercury 6y ago
GMO's forecasts, and really the backbone of their entire investing philosophy, is that valuations will revert to historical averages. Valuations are a non-stationary process with no defined mathematical mean, so the entire concept of "mean reverting valuations" is nonsensical. Their entire investing philosophy isn't based on some deep understanding of the market but is simply an "end of history illusion" that the past (in this case the era in which the principals of GMO came of age) will continue unchanged indefinitely into the future. It isn't just they they've been wrong about US valuations and US returns. They've also been wrong about Emerging Market valuations and those returns. It can't just be handwaved away as "US investors went crazy for FANG and Tesla" because that only addresses half their failure.

fractionalhare 6y ago

> GMO's assets under management have collapsed by well over 50% over the years Do you have a source for this? It looks like they've been hovering at $64B discretionary AUM since 2014, and that hasn't changed through 2020. [1][2] All I could find was this article, which I think might be misleading. [3] It seems like it might be conflating GMO's total AUM with the AUM of its asset allocation business, but I'm not sure. 1. https://web.archive.org/web/20150408043537/http://www.gmo.com/America/ https://web.archive.org/web/20150408043537/http://www.gmo.co... 2. https://www.gmo.com/globalassets/documents---manually-loaded/documents/legalcompliance-footer/gmopart2adv4113finalforpdf.pdf https://www.gmo.com/globalassets/documents---manually-loaded... 3. https://www.google.com/amp/s/www.marketwatch.com/amp/story/investor-bail-on-granthams-gmo-as-assets-at-company-fall-by-44-billion-2017-01-09 https://www.google.com/amp/s/www.marketwatch.com/amp/story/i...

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