The Finite Resource Assumption: Tripling or Quadrupling Down with Jeremy Grantham

Malcolm Turnbull is not the only person to be led astray by the assumption that resources are finite. According to GMO’s Jeremy Grantham:

Scavenging refuse pits will no doubt be a feature of the next century if we are lucky enough to still be in one piece.

Here is Grantham’s strategy for trading commodities:

Given my growing confidence in the idea of resource limitation over the last four years, if commodities were to keep going up, never to fall back, and I owned none of them, then I would have to throw myself under a bus.  If prices continue to run away, then my small position will be a solace and I would then try to focus on the more reasonably priced – “left behind” – commodities.  If on the other hand, more likely, they come down a lot, perhaps a lot lot, then I will grit my teeth and triple or quadruple my stake and look to own them forever. 

Sounds like a good formula for losing ‘a lot lot’. Apparently, this is what passes for macro strategy at GMO.

posted on 06 May 2011 by skirchner in Commodity Prices, Economics, Financial Markets

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