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By Pat Dorsey, CFA | 05-28-2009 11:11 AM

Grantham: Value Matters in Everything

GMO chief strategist Jeremy Grantham on the distinction between growth and return, and the importance of normalizing for profit margins.

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Pat Dorsey: There's sort of large demographic trends like this that are, to some extent, forecastable. You know, not easily reversible. How do those factor into some of your asset class forecasts for, say, developed markets versus emerging markets?

Jeremy Grantham: Mostly they don't.

Pat: OK.

Jeremy: Because in the end, returns to the stock market are overwhelmingly to do with the return on capital. It isn't about top line growth. Nobody believes this, but it's true. In other words, growth stock simply don't beat value stocks. Growth countries, for the record, have no history of reliably beating slower growth countries, although everyone thinks that's the case. It won't stand the test of analysis.

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