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To: Box-By-The-Riviera™ who wrote (106119)	6/2/2001 4:01:23 PM
From: patron_anejo_por_favor	Respond to of 436258

Interesting (bearish) take in today's Barron's from a highly successful Fund strategist...looks for reversion to the mean in the big cap averages, likes small cap value, emerging equities, REIT's: interactive.wsj.com When fund managers aren't barking orders to their traders, hacking their way through company documents or carving up overdone filet mignon during sales pitches for the latest new issue, there's a good chance they're "talking their book." This is the time-honored tendency of managers to express their enduring love for the stocks they happen to hold and to explain why the names simply can't help but appreciate in recognition of their owners' brilliance. Jeremy Grantham leaves such exercises to others -- to those with a lesser commitment to economic verities, the lessons of history and the cyclicality of investor behavior. Grantham is a founder, chief investment strategist and head of the quantitative investing group for Grantham Mayo Van Oterloo, a $21 billion Boston money-management firm. Some believers in an imminent, dramatic bear market are mere rooftop snipers or doomsday-awaiting bunker dwellers without a hand in the markets. But Grantham presses his well-reasoned, data-soaked case for a long decline in major U.S. equities despite the fact that one- third of his clients' money is in domestic stocks. And he tells clients who must allocate assets across the global investing firmament they might best seek out preservation and opportunistic growth of capital. GMO operates a few dozen mutual funds, but with $1 million minimums most are for institutions only. Exceptions are Vanguard U.S. Value, which it has sub-advised since early 2000, the Pelican fund, a large-cap value vehicle, and a portion of Vanguard Explorer, a small-cap fund. The 23-year-old firm, through its history, has generated returns in excess of the relevant benchmarks across all 12 strategies it employs, with an average annual outperformance of 2.6%. So, when Grantham offers his group's 10-year returns forecast for various asset classes, it might be worth listening. What's more, his 1982 assertion -- quoted in the media -- that U.S. stocks were on the cusp of greatness marks him as a clear-thinking strategist, rather than a bear by habit or constitution. In short, Grantham asserts, large U.S. stocks are headed for a decade of flat to negative real returns that will mark the unavoidable undoing of a 17-year up cycle, a respite needed to bring the S&P 500 back toward its fair value and historical trend. Some not-so-outlandish assumptions underpin this view: that price/earnings multiples will drop to 17.5 from 25, and company profit margins will dip to 6% from 7.8%. He even grants that dividend yields and sales growth rates actually will rise over that span. He likes to show a gallery of charts of various bubbles -- defined as bull markets that ran to extremes that statisticians define as two standard deviations over the long-term trend -- and not one has failed to give back every cent of gains before it was done. He has challenged a collection of 2,400 investment professionals to pose a single exception to this rule and has found no takers. As he told a large audience of investment pros recently: "Stock prices tend to return to average. What's driving stock prices down is that they went up." In practice, GMO pursues all its strategies, even growth equities, with a tilt toward value and a close, computer-honed attention to controlling risk. Its funds had a career year in 2000, as they were positioned to profit from the massive resurgence of value versus growth. Even for those who shirk Grantham's bold assertions on the inescapable reversion to historical norms for the broad market, his conclusions about what areas look better to him should hold some value. As he surveys the available asset classes, the most attractive places to ride out this potential comeuppance for large domestic stocks appear to be small-cap value shares, real-estate investment trusts, international small-company stocks and emerging-market equities. And, while his firm certainly offers ways to play each of those areas, its broad scope means Grantham's proclamations amount to more than the "talking-up" of his own book.