First: As we've noted before, the three great stock-market bubbles of the 20th Century--US in 1929, US in 1965, and Japan in 1989--were all followed by price troughs that were 50% below fair value. (See charts below right). The bubble that peaked last fall was every bit as spectacular as these earlier bubbles, so it seems reasonable to expect that stock prices might trough 50% below fair value this time, too.

Jeremy puts fair value on the S&P 500 at about 975 (vs. Friday's close of 940). A trough of 50% below fair value, therefore, would be about 500, or some 45%+ below today's levels.

The good news: US stocks are finally below fair value for the first time in two decades, so Jeremy finally feels comfortable buying them.  Also, three previous bubbles do not, in Jeremy's opinion, constitute enough of a data sample to bank on.  So he's hoping, for the sake of all of us, that it's different this time and the market won't fall 50% below fair value (while keeping in mind that this is a distinct possibility):

We have had some confidence in saying that by October 10th global equities were cheap on an absolute basis and cheaper than at any time in 20 years.  Full disclosure requires that we add that, in our opinion, this is not as brilliant as it sounds, for markets have been more or less permanently overpriced since 1994 and have not been very cheap since 1982-83 and perhaps a few weeks in 1987.
 
There is also a terrible caveat (isn’t there always?), and that is presented in Exhibit 3, which shows the three most important equity bubbles of the 20th Century: 1929, 1965, and Japan in 1989.  You will notice that all three overcorrected around their price trends by more than 50%! 

In the interest of general happiness, we do not trot out these exhibits often and, until recently, they would have been seen as totally irrelevant and perhaps indecent.  But, after all, it’s just
history.  Being optimistic like most humans, we draw the line at believing something so dire will happen this time. 

We can hide behind the fact that there are only three data points, and therefore no self-respecting statistician can give them much weight.  We can convince ourselves that things are different this time since the background to each of the four events, including this one, is different. 

One of them had high inflation; three, including the current situation, did not.  Japan and 1929 were characterized by complete incompetence, while this time we had only – shall we say – very widespread incompetence.  This time we have thrown ourselves more quickly into battle, although not so quickly as some would have liked. 

Not all of the differences are favorable:  we have a more global, interlocking, and complicated system, including non-bank players like hedge funds.  We also have the “financial weapons of mass destruction” – asset-backed securities that are tiered and sliced and repackaged – and, perhaps most destabilizing of all, totally unregulated credit default swaps.  Did we have even more greed and short-term orientation this time than they did?  Well, we certainly didn’t have less! 

Still, a 50% overrun seems unacceptable.  Probably governments would feel that the consequences of such a loss in asset value would simply be too awful and would do anything to prevent it.  And perhaps, just perhaps, their “anything” would work.  But a reasonably conservative investor looking at the data would want to allow for at least a 20% overrun to, say, 800 on the S&P 500, and have a tiny portion of their brain loaded with the notion that it just might be quite a bit worse.

So what the hell to do? Start buying, cautiously, saving some powder in case we get the same complete collapse that has followed other bubbles of this magnitude.

We at GMO have a strong value bias, and our curse, therefore, like all value managers, is being too early. In 1998 we saw horribly overpriced stocks that at 21 times earnings equaled the two previous great bubbles of 1929 and 1965.  Seeing this new “peak,” we were sellers far, far too early, only to watch it go to 35 times earnings!  And as it went up, so many of our clients went with it, reminding us that career risk is really the only other thing that matters. 

The other side of the coin is that only sleepy value managers buy brilliantly cheap stocks:  industrious, wide-awake value managers buy them when they are merely very nicely cheap, and suffer badly when they become – as they sometimes do – spectacularly cheap. 

I said as far back as 1999, while suffering from selling too soon, that my next big mistake would be buying too soon.  This probably sounded ridiculous for someone who was regarded as a perma bear, but I meant it.  With 14 years of an overpriced S&P, one feels like a perma bear
just as I felt like a perma bull at the end of 13 years of underpriced markets from 1973-86.  But that was long ago. 

Well, surprisingly, here we are again.  Finally!  On October 10th we can say that, with the S&P at 900, stocks are cheap in the U.S. and cheaper still overseas.  We will therefore be steady buyers at these prices.  Not necessarily rapid buyers, in fact probably not, but steady buyers.  But
we have no illusions.  Timing is diffi cult and is apparently not usually our skill set, although we got desperately and atypically lucky moving rapidly to underweight in emerging equities three months ago. 

That aside, we play the numbers.  And we recognize the real possibilities of severe and typical overruns.  We also recognize that the current crisis comes with possibly unique dangers of a 0.3
global meltdown.  We recognize, in short, that we are very probably buying too soon.  Caveat emptor.
source: http://www.clusterstock.com/2008/10/grantham-stocks-may-fall-another-50-but-still-time-to-buy

　　冀勇庆/文

　　10月5日是国庆长假的最后一天。一大早，百度公司的大会议室里已经坐满了公司的30多位高层，这里即将召开公司的第三季度总结会。就在会议开始之前，百度CEO李彦宏指着坐在前面的一位身材瘦削、面孔白净的年轻人，笑着对大家说：“我来给大家介绍一下这位新同事，李一男，他将担任我们的CTO。”

　　与露出惊讶之色的百度高管们不同，李一男异常平静地站起来，面向大家打了个招呼之后又重新坐了下来。在随后的三天时间里，他一直神情专注地听着别人的发言，自己却很少说话，他显然还在熟悉自己的新工作之中。

　　10月6日，百度正式发布公告宣布了对李一男的任命。在当天发送给公司全体员工的电子邮件中，李彦宏这样写道：“对多数技术背景的同事来说，李一男先生无需过多介绍，他是中国IT产业的一个传奇。”

　　确实，对于IT人来说，李一男就是传奇；而且，他的所有传奇都与一家赫赫有名的企业——华为纠缠在一起：他在华为平步青云，成为公司第三号人物；他叛离华为，成为华为的眼中钉、肉中刺；他被华为击败，不得不回到华为。

　　如今，走进百度的他已经不再与华为有任何联系；那么，走出华为的他还能够续写自己的传奇吗？

　　华为的烙印

　　他曾经有过一段传奇的经历：15岁考上华中理工大学少年班，22岁加入华为，一年以后担任华为历史上最为重要的产品“万门交换机”的研发负责人，26岁成为华为负责产品研发的常务副总裁。在此后的三年里，华为从一家只有单一产品的电信设备供应商发展成拥有交换机、光传输、移动通信、业务软件等全系列产品的“全能战士”，这期间也有他的功劳。

　　华为是他的第一份工作，他在这里学习、成长、悟道。原华为无线研究部的总工程师唐东风曾经无限崇敬地谈起李一男的一件事情：有一次唐东风要给客户做技术汇报，邀请李一男参加。由于工作太忙，就在从一楼去往二楼会议室的路上，李一男还没有看过相关的技术资料。但是就在这几分钟的时间里，在听了部下的简略汇报之后，进入会场的李一男竟然能够异常精确地将这项技术的关键点描述得清清楚楚，尽管他当时还不完全了解这项技术的细节。

　　正是由于对技术的超强驾驭能力，在原技术负责人郑宝用因病半退之后，他很快成了华为的技术“大脑”、华为总裁任正非最倚重的智囊，成了仅次于任正非和华为董事长孙亚芳的第三号人物，成了任正非的接班人和“干儿子”。

　　一毕业就加入华为，一路上顺风顺水，这些都使得李一男的身上深深地打上了华为和任正非的烙印。不管是有意还是无意，他越来越像自己的老师任正非，无论是为人处世还是领导风格，就连骂起人来的那股子狠劲儿都与任正非难分高下，以至于当年他手下的华为员工对年轻的李总都有非常大的畏惧心理，就像害怕老板任正非一样。他的坏脾气甚至超过了任正非。有一次他参加公司的部门聚餐，一位还不太了解他脾气的员工上前给在座的所有领导敬酒，其他领导在劝说下都喝了一点，而他却执意推辞。当这位员工略带醉意地执意继续相劝的时候，他禁不住勃然大怒，竟然当着所有人的面破口大骂并拂袖而去。
生活中的李一男也与任正非有着众多的共同点：任正非对媒体从来都是敬而远之，李一男在港湾6年的时间也只接受了一次媒体采访；任正非日常经常是不修边幅，喜欢穿白衬衫的李一男的衬衫后襟也总是从长裤中冒出来；任正非吃起饭来狼吞虎咽，一点不挑剔；李一男也是饭菜照单全收。还在北京西三环的久凌大厦办公的时候，他每天早上必去附近的一家包子铺，虽然其他人都觉得那里的包子并不好吃。

　　在创立港湾之后，他几乎将华为的整套制度全部照搬过来，以至于港湾一直被业界称为“小华为”。一些港湾员工至今还记得开会时李一男经常会滔滔不绝地讲起中国革命史，而任正非当年也是学毛标兵。

　　港湾内部实行全员持股，他慷慨地将很大比例的股票和期权授予员工，就如同任正非在华为一样。港湾内部的管理制度，无论是产品定价、研发流程、人力资源管理，几乎都来自华为，甚至就连部门设置也是华为味道十足的干部部、市场财经部等名称。华为办事处推行异地任职，港湾也照此办理；华为的办事处主任几年轮换一次，港湾一两年也要换岗；华为每两周开一次管理层例会，港湾也两周一次例会；甚至当华为将作息时间改成每月最后一个星期日不休息之后不久，港湾也采用了同样的作息制度。

　　港湾之败

　　与任正非一样，李一男也有着极强的个性，这最终使得他在2000年离开华为并创立了港湾。1998年，踌躇满志的李一男突然被调离中央研究部，转而负责市场部下面的产品部。对于这次调动，一直顺风顺水的他怎么也不能接受。而在“严父”任正非看来，这只是一次很正常的调动，他希望李一男能够从研发走出来，走向市场，也希望通过这次磨练使他更加成熟，将来担当更加重要的岗位。但是，这种父亲般的良苦用心不仅没有得到李一男的理解，反而在他心中产生了相反作用——他觉得自己已经不被任正非重视，因此动了离开的念头。希望通过创业重新证明自己的价值。

　　2000年初，在先后担任了安圣电气(原华为电气)总裁和华为美国研究所所长等边缘职务之后，李一男正式向任正非提出了辞呈。感到震惊的任正非百般挽留却用错了方式，这也更加坚定了他离开的决心。到了12月，任正非只好接受他的要求，并为他举行了隆重的欢送大会。在这次大会上，李一男深情地宣读了创业的个人声明：“华为目前在数据通信领域上是一个相对薄弱点，同时也是一个潜在的机会点......我本人也很有兴趣在这方面发展，如果自己可以内部创业的话，一方面可以在一个小公司中比较自由地工作，另一方面可以使内部创业公司的发展随着华为的发展同步发展，应该是一个很好的选择。”他还承诺，愿意与华为签定同业禁止协议。

　　当然，他从来也没有想过要遵守这个承诺。在代理了一段时间华为的数据通信产品之后，港湾很快就将华为一脚踢开，推出了自己的产品。接着，华为北京研究所的一个研发团队竟然集体失踪投奔港湾，这也使得华为在数据通信领域的研发精英几乎损失殆尽。港湾挖人的手法几乎与原来的华为同出一辙：除了高薪之外还有诱人的股票和期权，以及美好的上市前景。

　　风险投资商们更是在已经熊熊燃烧的火盆中又投入了好几根干柴，他们在港湾身上先后投下了将近1亿美元的重注，希望能够尽快将港湾送到美国纳斯达克上市。一位国际著名投资银行的高层人士更是在2001年公开表示，李一男是他们看中的中国下一代企业家中的第一人选。
但是，李一男的目标并不是做一颗发着微光的小星星，而是要成为灿烂夺目的太阳，他的雄心壮志就像当年的任正非一样。早在1994年创业初期时任正非就敢于声称：将来电信设备市场将会三分天下，西门子、阿尔卡特和华为。而在港湾刚刚成立的时候，李一男在提起两家国内最为知名IT企业的时候就颇为不屑地说过：“他们都是狗屁，什么都不是，我们做起来比他们强多了！”

　　他希望港湾也能像几年以前的华为那样高速增长，他也希望港湾不再是一家产品单一的网络设备商而是华为那样的全业务解决方案供应商。当然，他本人也想成为第二个任正非。于是，在港湾推出宽带接入产品(VDSL和ADSL)大获成功之后，他就急不可耐地杀入路由器、光网络等新领域。他不顾技术部门负责人的反对，下令上马高端路由器并在2002年底推出了产品。这一次他确实跑在了任正非的前面——当时业界普遍认为，在数据通信领域港湾要领先华为至少半年。

　　与如日中天的港湾相比，当时的华为却好像进入了冬天：任正非推出的内部创业不仅没能清除掉所谓的“沉淀层”，反而放走了李一男、黄耀旭、彭松等虎狼之师，还动摇了华为的军心。全球电信行业的不景气也使得华为颇为受伤，多年来高速增长的华为竟然在2002年出现了第一次负增长！

　　也许是认为超越华为的时机即将到来，在李一男的坚持之下港湾做了一系列的并购，并在2003年12月放出胜负手——收购了另一位前华为副总裁黄耀旭创办的深圳钧天科技公司。如果说以前港湾还只是像蚊子一样在华为这头大象身上叮几口的话，收购钧天之后的港湾已经在憧憬着从正面击倒大象的时刻了——钧天是一家专注于光网络的技术型公司，而光网络产品线一直都是华为的利润奶牛，曾经贡献了华为全部利润的三分之一以上。

　　这也使得任正非不得不对他痛下杀手。为了对付港湾，华为内部甚至成立了专门的机构，并与港湾在每个地区、每个客户、每个订单上展开了血腥的争夺。据说，只要把单子丢给了港湾，华为所在地的办事处主任就要被免职。据说，在2004年某电信运营商宽带接入的招标中，华为将原来1.4亿元的投标价一口气降下了50%，就是为了阻击港湾......

　　这是狼群中的头狼与小狼为争夺领导地位的巅峰之战，双方都使出了浑身解数。只有到了这个时候，李一男在管理能力上的欠缺才会暴露无遗：长期以来的独断专行使得他与投资人的关系日趋紧张，对投资业务的陌生又使得他轻率地与投资人签下了对赌协议；他对部下分而治之却无法掌握好平衡，各部门内斗不断，最后甚至出现了两个部门针对同一件事情颁布两种不同规定的咄咄怪事；他对华为出身员工的盲目重用使得非华为出身员工的积极性备受打击；他对公司内部管理的疏忽使得公司产生了几千万元说不清道不明的坏账……只有在这个时候，一直专注于技术领域的他才发现自己就像学了半吊子功夫就匆忙下山的习武者，虽然也可称霸一时，但是却成不了绝顶高手。他也许是一位很好的技术带头人和组织者，但是当时的他还不是一位真正的企业组织者。

　　最后，在投标失利、现金流枯竭、上市无望、与西门子通信的收购意向又被华为硬生生拆散之后，已经撑不下去的投资人再也无法忍受，他们毅然废黜了李一男，将港湾的大部分资产出售给了华为。2006年6月，刚刚度过了自己36岁本命年生日的他遭遇了自己人生中最大的挫折：他自己亲手创立的港湾完败于曾经带给他无限荣耀的老东家华为。
走出华为

　　2006年9月，已经是孤家寡人的李一男被迫又回到了华为，担任专门为其设置的首席科学家的虚职，可以想见，他的心里有多么的酸楚和无奈。其实，任正非要求他回到华为也许并不是要重新起用他，而是将他作为最大的警示牌使用而已。重回华为的第一天，他的办公室外就聚集了一拨又一拨前来参观的华为员工，他们在窗外指指点点，小声地议论着。最后他不胜其扰，只得将办公室的玻璃换成了不透明的毛玻璃。通过对李一男的“示众”，任正非极大地震慑了有创业想法的华为员工，为华为的大发展争取到了两年多的宝贵时间——在这段时间里华为的业务突飞猛进，进入了全球电信设备商的前三强。

　　对于李一男来说，这可能也是他人生中最为难熬的两年。还不到40岁，处在瞬息万变的IT行业的他，却硬生生地被“废”掉了两年，任谁都不甘心。因此，他想离开是很自然的事情。在这两年多的时间里，业界曾经数次传说他要离开华为再次创业，但是最后却都被证明是谣言。他想走，但是却走不了——据说华为收购港湾的时候，为了保证港湾员工的利益，他被迫签下了“卖身契”，必须为华为效力N年。这两年，华为的员工很少能够在总部的办公室里看到李一男的身影，也没听说他参与过什么重大项目的决策；显然，他更多的时间还是在面壁思过，自己一个人待在那个被遗忘的角落。

　　幸好时间能够淡化所有的恩怨。两年多之后，他终于重获自由身。出乎众人意料之外的是，他并没有再次创业，而是加盟了一家互联网公司，出任CTO。从他的这次选择来看，他也许已经通过两年多的时间，参透了自己的宿命：作为典型的中国式工科教育培养出来的技术天才，他需要补习技术之外的管理知识才有可能大展宏图，而现实环境却不允许他在电信行业完成这次补习。

　　所幸的是，他过去从容调度近万名技术人才的管理经验也正是电信之外的技术型公司所欠缺——在前任CTO刘建国于2006年离开之后，百度一直在寻觅一位有丰富技术管理经验的高手。也只有在CTO这个位置上，李一男的转换成本是最低的，虽然一个是电信设备另一个是互联网，但是他们的最终体现都是软件和一行行的代码。而且，离开前在华为手机和终端部门“实习”的李一男也许还能够帮助百度实现梦寐以求的扩张，从固定互联网进入前景更为广阔的移动互联网。

　　但是，这并不意味着他将回归技术本位。通过在职位设置更加灵活的互联网公司的历练，他也许能够接触到很多在华为还没有来得及接触到的管理职能，能够补上在华为还没有学完的课程。而且，从制造业到服务业的转型也许还会使他明白：企业的成功之道并不只有一条，华为能够成功，但是盲目照搬华为的企业却未必能够再次成功；自己要想超越过去的辉煌，首先需要做的事情恰恰就是超越自己的华为情结，走自己的路。

　　不管未来李一男能够在百度待多长时间，也不管他是否还会再次创业，如今的李一男已经超越了昔日的那个李一男。

听说希特勒以前也最爱听唐豪赛 Tannhäuser。也许，每个人心目中都有自己的唐豪赛

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

• "Expecting that to continue, I took too much comfort in the fact that the overwhelming majority of mortgages Washington Mutual owned had balances of less than 80% of appraised value. Believing that the collateral was so valuable, I wasn’t as concerned as I should have been with softening underwriting standards. After all, if the borrower defaulted, the house could still be sold for more than the mortgage debt. After nationwide prices fell 20%—and further in hot markets—the collateral was no longer worth more than the loan, and serious losses resulted. A mortgage market previously viewed as secure became viewed as very risky. Sellers flooded the market, and prices fell sharply. Because of its leverage, Washington Mutual’s assets, marked-to-market, were no longer greater than its liabilities."
•  "Market prices of mortgages fell which created losses and reduced the equity of the firms that held them. With typical leverage ratios of 15:1, each $1 loss forced the sale of $14 of assets, primarily mortgages. That further depressed prices, increasing losses, decreasing equity, and forcing more sales. The downward spiral fed on itself."
  lessons learned: 
  in today’s economic climate, we need to consider a broader array of outcomes than we previously considered, especially for companies that employ financial leverage