YouSaid · the spoken record

Ben Inker

lines on the record: 105
first: 2020-03-30
most recent: 2020-03-30
sittings or episodes: 1
sources: podcast

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“I'd say there's kind of two. One of them is Life is too short to spend your time around people that you don't like. And the other is kind of comes back to the external validation versus internal. You are never as smart as you think you are when things are going well, and you are probably smarter than you think you are when things are going against you.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“As a kid, whenever I go to my parents and give them a report card or show them something on a paper, one thing they tended to ask me was well, how do you feel about it? I think this is a world where there is an awful lot of focus on external validation, where the way you feel about yourself is driven by how you think other people feel about you. And I'd say maybe the most valuable thing my parents Before you worry about what other people think about you. Make sure you like what you are doing, you like who you are.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“We don't have a systematic way of doing it, certainly various teams are Mining it to try to get information that hasn't showed up in the hard data yet. But I don't think, at least as a firm, we have really figured out how can you use this to get at underlying economic truths. We live in this world and social media is partially to blame where truth has been somewhat devalued, but figuring out What is emblematic of kind of a profound change? And I think as investors, one of the most important things we need to do is be on the lookout for change. Social media is one of the places where you can theoretically see it. But I don't know. How you mine it for those truths?”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Over the course of a year, but over anything close to something similar of duration to the securities you own, it's impossible. And it just comes from the sloppy thinking, not thinking, how were those returns generated and why were those returns generated? And I think people would avoid so many of the mistakes they make as investors if they just stop and ask why and how. How do you?”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think it's the fact that people don't ask why and they don't ask how. They say, well, you know. Equities give a higher return than bonds. Okay, great. Why do they do that? If it's about a risk premium for depression risk, which I think it is. Well, under what circumstances should you expect that that's going to go away? And if you actually think you live in a world that doesn't have depressions anymore, why do you think you're going to get paid an equity risk premium? And one of the things that investors tend to get wrong is their forward-looking return. assumptions are driven hugely by backward looking return analysis. And so, you know, you've got plenty of people who implicitly in their fixed income portfolios are saying, well, I think I'm going to get five and I think I'm going to get five because that's what they've done over the last 25, 30 years. There is no way to get five out of a fixed income benchmark that is yielding 2.2. It just can't happen. It can happen.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is probably not going to put me in a particularly good light, but I hate it when people. Use words that they don't actually know the meaning of. I find it frustrating in the investment world there are two purposes to communication. One of them is to actually communicate, to teach people stuff, to let them know how you think and maybe how you think they should think. The other piece is to show them how smart you are. And the thing I find endlessly frustrating and people are trying to show how smart they are by misusing words. And so I know it's petty of me, but every time somebody is using the term fulsome when they actually mean plentiful or it's wrong, whenever they use militate and they don't understand that that should be used in kind of a negative way, that you militate against something, it just bothers me because they are clearly using it to try to impress.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“I knew you were going to ask that, and I still don't have a great question. I was thinking about, well, what is it that I do the most outside of work and family? It turns out to be listening to audiobooks and podcasts. I could pretend that that is all about self-expansion. I'm not sure that that's true. I think a lot of it comes down to the fact that when I was a little kid My dad would read to me before bed every night and I couldn't fall asleep if he didn't. And it turns out once, particularly we have smartphones and the availability of audio. Books and podcasts are there. Turns out I love being read to. I spent thirty years in a world where I couldn't be read to because that was not an available thing and now I can be read to again. So I love consuming information that way.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“The markets and economies holding together today does depend on government action in a way that is almost unique. Government stepping in really helped the financial crisis not turn into a depression. But what we have seen is Normal depressions end themselves even without that much help. I mean, the human toll can be horrific, but they do end. This kind of sudden stop in the economy is really outside the realm of historic comparison. Frankly, governments are the only entities that have the capacity to do what needs to get done. So we are reliant on the government to do the right thing, which is always a little bit scary. The good news is the right thing isn't necessarily super complicated. It just requires people to say whatever my normal beliefs are about the role of government. It's got to be different right now.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“The case of US large caps, we still don't think they're at fair value yet, but they're a lot cheaper than they were a month and a half ago in the case of emerging markets, which were close to fair value a month and a half ago, they're cheap. Non-US equities are probably cheap. Value stocks where we were seeing a really historically interestingly widespread, that's just gotten wider. So from the standpoint of If you can hold your nose and not be staring at your port. There's some great opportunities here, but it requires some bravery in a way that it didn't feel like it did in early January.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Stocks always outperform in the second phase. It is the stuff that has gotten really cheap starts to outperform. And then in the third phase, you can even start to see a change in sign where the really cheap stuff, even before the market has hit the bottom, can start to turn around. And so as this wears on, I think valuation is going to start to matter more and more. But I'd say the first headline is everything that you can plausibly think of as a risk asset has just gotten a lot cheaper.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“In this part of the downturn, traditional value stocks have continued to underperform and the group that has held up the best is high quality companies. And look, that makes perfect sense. You know, this is a disaster for lots of industries. It's not really a disaster for drug companies. It's not a disaster for internet service providers or the Googles of this world. So I'm not surprised that value to date has not done particularly well on the downside. One of the things we've looked at, and this kind of goes back to some of the work that Jeremy Grantham has done over the last 45 years is in the first stage of bear markets, everything tends to go down the same. And if anything helps, it's quality. In the second phase, valuation tends to matter. That doesn't mean value.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Those acute events is not so much that stocks lose their value forever, it's that it's not clear what the catalyst will be to get people to be willing to take risk again. But for us as long-term investors, when we see an event like this, we feel it is our responsibility to be buying risky assets. This is why risky assets give a risk premium. Risky assets do really badly in really bad circumstances. And this is a really bad circumstance. So it's not a shock. It's not a surprise. It's part of the package. And what we see in these events and what we are seeing today, what we saw in the global financial crisis, is the payment for taking risk just goes up. And if you're not prepared to take risk when the payment for Taking risk has really got up, you're not really an investor anymore, or at least you're not a long-term investor.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Every dollar of activity that is not going on is also a dollar of income that is not going in. So we are operating under the assumption that governments will do the necessary things to stop this from being an unimaginable disaster. And then we come to the conclusion that for the most part this shouldn't change the fair value of equities by a lot. That does not in any way discount the potential of markets to completely crater as kind of the human and emotional aspects of this really come to the fore. And what we have seen in past crises of various kinds is people's emotional slash intellectual ability to think long term really gets hit. And therefore, the problem with”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of how much dilution did you face? And historically apart from events of frankly revolution and regime change, we haven't seen profoundly dilutive events. We've seen things where you got diluted a few percent, maybe as much as 5% in the case of financials. It can be a little bit more. But as we look around and think about what the world will look like in five years, it's hard for us to see why there should be a sea change in the return on capital. And the dilution from this event, well, there's more uncertainty there because if it was the case that government did not step in to support the economy, it would be disastrous. Economies are not meant to come to a sudden stop.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so we've really been focused on trying to answer those questions. For equities, it's not a very complicated couple of questions, albeit the answers are not necessarily trivial, even if the questions are straightforward. The two ways you can lose value in equities from a long-term perspective is if an event causes a long-term decrease in the return on capital, or if an event causes you as a shareholder to be significantly diluted. Now, bankruptcy is the obvious case of dilution. You came in owning the company, you come out owning nothing. That can be an issue if you own an individual stock. It's historically not been an issue if you owned a broadly diversified portfolio. So even the really bad events have been a question of...”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“It is amazing that we were there only three weeks ago. Now we were bumping elbows instead of shaking hands, but still it felt like a very different world back then. What we try to do when faced with an uncertain situation, and this is nothing, if not an uncertain situation is really get down to the basics of what it is that drives asset returns in the long term. So obviously prices for every kind of risky asset have fallen very significantly in the past few weeks. And so on the face of it, everything looks more attractive. Now, everything only looks more attractive if the fair value hasn't changed that much. And so what we've been focusing on is the question of how do you try to understand the circumstances that change long-term fair value?”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think one of the benefits you can have, I truly do believe this, is time horizon. A lot of things become more predictable over long time horizons. So if you really believe you can be a long-term investor, there are things you can do that you can't if you're not. The other reality is part of the game Again, this comes back to the illiquid side of things, is in a world where there is some significant persistence of excess return. Having access to the best managers is a big deal. And if you do, that's cool. And that can be a benefit. If you don't Be realistic about what you're actually going to get.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Last month. And one of the obnoxious questions we ask the audience is, how many of you think you are better than average at finding active managers? The surprising thing was, I think, 18% of the audience said they did not think they were better than average. But, you know, if 80 plus percent think they are better than average, a lot of them were wrong. And they can do damage to their portfolio insofar as their beliefs and the reality are different.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“A foundation that is not going to have any future cash flows is different from one that is going to be having future cash flows. The world of, even if we stick with a foundation, a foundation that exists to try to cure cancer. And therefore, the need is unaffected by the state of the economy versus a foundation who is trying to feed the homeless, where actually the need gets a lot bigger when the economy goes down. Those two foundations should not be running the same portfolio because they can't bear the same risks. But it's not just about what as an investor can you put up with from a risk standpoint. It's also, what are you prepared to say about your beliefs? I was speaking at an endowment and foundation conference.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Be serious about what risks you can afford to take and what risks you can't and make sure you are not running a portfolio that is taking risks you can't afford to take. Otherwise, there's a lot of differences. People assume that every investor is kind of in the same boat. But the reality is the world for”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think the first question you need to answer to be able to answer that is be serious about what do you think you're really good at? If I am sitting down across from you, Ted, and you can say, you know what, I've got a lot of experience, I think I am really good at finding extraordinary managers. Then the answer is, how do I structure my portfolio so that I'm going to get the maximum benefit of finding those extraordinary managers? And the interquartile range of returns is wider in most of the liquids than it is in liquids. Maybe you, Ted, should have a lot of money in liquids. And then the question is, how much can I afford to have in illiquids? And let's be serious about it. You do not want to find yourself in the situation that some institutions did in 2008 where they thought it was fine to be 75% illiquid assets and it turned out it wasn't. So once you've decided what you think you're really good at, the second thing is...”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“I want to turn to some closing questions, but before we do that, I want to ask you a question that I imagine you get a lot, which is if you had a nice sized pool of capital, it could be for an institution, endowment foundation, pension fund, it doesn't matter, and asset prices are where they are today. Maybe there's a liquidity premium, maybe there isn't. How would you think about it, and what would you do?”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think dangerous. I think it is going to cause you not to be focused on the question of, all right, if I think this is about operational excellence, why do I think that this company has unique operational excellence? Why do I think as the world has changed and we have all learned from what these private equity firms have done that they have a sustainable advantage there? It's not that there aren't private equity firms that can answer those questions well, but if you don't ask those questions, you're not going to know which ones. And you're probably just going to wind up paying high fees. Managers, some of whom do not have the characteristics that would be required to add the value you are assuming you're going to get.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“In service of improving the operations, or I really want this company to lever themselves up. And the only way I can really force them to do that is if I own the whole company. Okay, fine. So you are extracting money from the creditors. And the only way you can do that is by taking it a liquid. But this assumption that you get paid in illiquidity premium for anything that happens to be illiquid is”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“And I try to ask them, and it's not that I am successful in convincing anyone of this, but okay, we have an LBO. You are taking a company that was public, you are taking them private, you are going to take them public again So fine in the interim it is illiquid But where does that illiquidity premium come from? It was a liquid asset, it will be a liquid asset How can you possibly be getting paid in illiquidity premium for a fundamental asset that will be liquid before you get it and will be liquid afterwards now if what you are saying is by giving up that liquidity I am getting something else my private equity manager is awesome at improving the underlying operational efficiency of the company and you can only do that if you own the whole thing so the liquidity is there”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“The reality is there are circumstances in which you can see that you are getting paid for giving up liquidity, right? And the fixed income markets. And my favorite example of this is in the emerging sovereign debt world where our team has been operating for 26 years. And you can have two different bonds that are both full faith and credit of Brazil for whatever that's worth, right? Maybe you think that that's a wonderful thing. Maybe you think that that's a horrible thing. But where the basic difference is one of these is a very liquid bond and one of them has much wider spreads and a much less deep market. And you're getting paid 250 basis points more for owning the less liquid bond. Okay, that is an illiquidity premium. I know lots of investors who are saying we are putting money into LBOs because there is an illiquidity premium there.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Doing the work and asking the hard questions, I'd say a lot of the mistakes that we see investors make is simply Following past returns and not asking the question, well, where did those returns come from? How sustainable are those returns? Or why is this an activity that really deserves to give me a fundamental premium? And under what circumstances should I call into question whether that's going to be true going forward? I would say my most frustrating term that I see every time I speak to an investment committee and most of the time when I serve on investment committee is this idea of an illiquidity premium. People are investing in illiquids and they make this underlying assumption I am giving up liquidity.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I am going to sound like a broken record. I think a surprising number of them come down to not asking the question of why and how or allowing themselves to believe Maybe naive narratives about the answers. So, I think as I have seen extraordinary investors over the years, some of their key characteristics are They do a ton of work. They do not just follow their gut and say, oh, well, I met this guy. He seemed really smart. I'm going to back him. But they do a ton of work on analyzing their managers, analyzing the kinds of things they're going to do. And they ask, Difficult questions about why I think this person is going to be an extraordinary investor? Why do I think this activity is something that I'm going to get paid for? And I think at the end of the day, there is no substitute for”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Given how low rates have been, and indeed how tight credit spreads have been, private equity firms have had an enhanced ability to buy growth companies and take them private. We've also had a world where frankly the big dominant companies have bought a lot of companies. And most of the companies they bought were growth companies. Maybe in the future they're not going to be allowed to buy other companies in the same way. And if we ever got a change in either credit spreads or the overall level of interest rates, maybe the private equity firms will have to again disproportionately buy cheap companies again. So we can answer the question why did value do less well? And a small but not insignificant piece seems to have been around takeovers. That does not necessarily tell us will that persist into the future or not? And there”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Maybe this was 30 basis points, 40 basis points a year in favor of value, and it disappeared. But that does in principle change the fair value discount you need to trade at to have future performance similar to historic performance for value. But one of the difficult questions with something like that is, do we expect this going forward?”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“more than average from takeover activity. M&A activity does not add anything to the whole. It would be weird if it did. But if you can systematically manage to be the target rather than the acquirer, that's a good thing. It's always been a nice benefit to being small because small companies get taken over by big companies and the reverse does not generally happen. And it was always a disproportionate benefit for value. Value companies get taken over by more often. The last twelve years there's been this interesting difference. It looks as if more growth companies have been taken over than there used to have been. There is a difference between a world in which you think you will be a disproportionate beneficiary of this to actually it doesn't matter”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Certainly, the thing we Been focusing on the last couple of years is Trying to understand the underlying fundamentals about why value underperformed. And I think, you know, one of the assumptions I had going in was, well, of course it was the case that their undergrowth was worse than normal. Turns out it wasn't. Now some of the things that hadn't really occurred to me as potential drivers of this have been at least implicated to it. So one of the benefits of being value is you have benefited.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is there a point in time where you'll think you said twelve years of underperformance of value do you get to a point in time where you kind of scratch your head and say, you know what, maybe the fundamental drivers of businesses have changed into these two groups of companies. And whatever the discount, 25% discount value spread was, actually wasn't wide enough for this new economic reality.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so I think whereas a lot of them had very value biased portfolios in 2005 and 2007, they don't. Now, there's also the underlying reality that some of the quantitative managers ourselves included do have a value bias. The ones that do have a value bias have not had great trailing 1, 3, and 5-year performance, and therefore the flows haven't been going there. So you have a tendency for the quants to gravitate away from value. You have a tendency for the money to be gravitating away from value. And that combination means the quantitative investors that have been gathering the money aren't valuable.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the things about is they tend to naturally gravitate to whatever has worked. If you are a quant, your favorite tool is the back test. And it has now been 12 years that value has underperformed. You are much less likely to come up with a quantitative stock selection technique that is predominantly value because if you look back, you say, oh, well, this hasn't worked.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Even though you mentioned that a lot of the fundamental portfolios are tilted towards growth, we also hear a lot about the impact of large pools of quantitative investing. Why do you think it's the case that more of that quantitative money hasn't sort of normalized these value spreads?”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“They're cheap, they're decently profitable, they're not very levered, and all I need to get a good return is for the world not to end.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Since the absolute valuations tend to be lower outside of the US, the income benefit of being value is bigger. The emerging portfolio that we're running and kind of our multi-asset portfolios, as of the end of the year was trading at nine times earnings with a dividend yield of five. And the really cool thing about a portfolio trading at nine times earnings with a dividend yield of five is you don't need good things to happen to get a good return out of that. You just need catastrophically bad things to fail to happen. Now that is not a guarantee that catastrophically bad things won't happen. But it does put the odds in your favor. If you are buying a portfolio that is trading at 27 times earnings with a dividend yield of one, you need good things to happen. Maybe they will, but I am really excited about the companies we own outside of the US because”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“It varies by market, but if it was normally 25, maybe today it is 35 or 37. It is much wider than normal. I think there's a lot of tendency to focus on this in the US. Well, one, we're in the US, and so we tend to be a little bit parochial in our outlook. The value spreads are probably wider outside of the U.S. than they are in the US. And there's a couple of things that are particularly cool about that opportunity. One is outside of the US, we haven't seen this profound underlying fundamental benefit of being a giant dominant company in quite the same way. So there seems to be less of the air sucked out of the industry by the biggest two or three players. So fundamentally, we're a little bit less worried there. Other thing that's actually a key difference is”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“And they didn't deserve to win. They deserved to lose from that level. So the fundamental performance of value hasn't been that different. The problem is we started off at basically the most expensive time in history for value relative to the market. And today we're really cheap again.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Where value has really underperformed, the interesting thing is that undergrowth has been almost exactly the same as history. So even though we have Google, even though we have Amazon, the fundamental undergrowth of value companies hasn't been worse than normal. There have been a couple of other things under the surface that have mattered. One of them, crucially for the US, has been the fact that the dividend income you have gotten from being value has been lower than normal. And that's simply because the US has traded at much lower dividend yields. So the cheaper companies, you just get a smaller increment of additional dividends. There have been a couple of other things going on under the surface, but the key reason why value was doomed to fail in 2007 was not because Amazon was destined to conquer the world. It was that instead of trading at a 25% discount, value was trading at a 17% discount.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“The simplest case for value Is that these value companies have a certain amount of undergrowth relative to the market? And they are trading at a bigger discount than you need to to pay for that undergrowth. Price matters, as I learned from Robert Schiller. Price matters with everything. To make it slightly oversimplified, value stocks trade at a discount by definition. Historically, they traded at a 25% discount, and they undergrew by 3% a year. And it turns out that a 25% discount and 3% a year undergrowth. Allows you to downperform by a point a year. In the more recent period,”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Bunch of head scratchers. There's certainly this question of productivity, this question of the impact of concentration and technology, and at the same time almost more than any time in your tenure at GMO, notwithstanding the late 90s, you've effectively been pounding the table on what you see as a very attractive value. What is that case for value today?”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“And that's something we should be able to measure, right? You can measure the number of widgets that were produced. You can measure the number of people who are working in the factory. So I don't think we have the data wrong But there's something really deeply mysterious about that productivity growth has been net negative. We are less productive making stuff than we were in 2011. And that shouldn't happen, right? At the very least, you should be able to maintain your productivity growth by keeping your factory exactly the same. We have underperformed that. I don't understand how. I don't understand why, and of course how and why are the questions that I most love. But it does, I think, call into question some of the assumptions we have a tendency to make about what future returns on capital are going to be.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“We know it's probably not possible to have productivity growth in giving haircuts. Maybe there's productivity growth in financial services, but we don't actually know how to measure the output. We don't know how to measure the inputs. Maybe there's been wonderful productivity growth and we just haven't measured it. And the problem economists have said, and they're continuing to say, is well, manufacturing is less than 20% of the economy, so even though that's where the productivity growth is going to be, it won't matter as much as it used to. I assumed that that was what was going on until I looked at the data. But if you look at the data, I believe it to be the case that since two thousand eleven productivity growth in the US in manufacturing has been worse than the productivity growth across the entire economy every year.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“This is disproportionately good for the growth guys. It is possible that it is, but it's also possible that it isn't. The most striking thing economically that has been associated with the period of these surprisingly low interest rates relative to expectations has been the surprisingly poor productivity growth of the US economy. In some ways inexplicably poor productivity growth has been lousy. It was lousy last year. It's been lousy the last five years. It's been lousy to last ten years. And some people said, well, of course that was going to happen because we're a service-based economy and services, it's hard to have productivity growth. And even if it was possible to have productivity growth, how do you even measure it?”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“How do you compare that to the discount rate just fell by 50 basis points? And that is driven by an underlying change in the Dynamism of the economy such that I think that that 15% ROIC I used to believe for Amazon is now fourteen and a half percent. Now 14.5% is still a great ROIC. But if there are ROIC has in fact dropped by that fifty basis points, they're no longer a long-duration asset, at least with regard to this change. And I don't know how do you tell the difference between Amazon having a fifteen percent ROIC and a 14.5% ROIC?”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Which is what happens to the numerator of my fraction here as I am changing the denominator. So the underlying risk free rate impacts the denominator of my discounted cash flow model. And if you assume it has no impact on the numerator, it has no impact on my future dividends and future cash flows, then what you want is somebody who's not going to be paying any dividends for 10 years at the very least. But how do you tell the difference? If the discount rate falls by 50 basis points between saying, well, for Amazon this is wonderful because I thought they had an ROIC of 15%, I still think that, and the discount rate is fallen by 50 basis points. And man, that's great because all of their earnings come from the distant future.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Reduction in interest rates are growth stocks because growth stocks seem to be higher duration stocks by virtue of the fact that more of your cash flow comes from the distant future. The tricky part of that is there's an underlying assumption there that's really difficult to test.”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source
“Market should be to this and how sensitive different kinds of stocks should have their prices to this. Because in one sense to take the fixed income analogy, this all comes down to duration. If interest rates fall and you own cash, well, you get no capital gain because you have no duration and therefore there's no change to your price. If you own the 30-year bond, you have a lot of duration and you have a nice capital gain. Equities are in principle an exceptionally long duration asset. Relative to bonds, they are both a perpetuity, so there is no maturity date, and that makes them long duration. But also they're even longer duration than a perpetual bond because their cash flows grow over time, and therefore cash flows you're going to be getting in 20, 30, 50 years have some material present value. You could come to the conclusion that the stocks that are most benefited by this”
2020-03-30 · Capital Allocators · Ben Inker – Value Investing at GMO (First Meeting, EP.17) · IDENTIFIED FROM THE TRANSCRIPT · source