Odd Lots James Montier Explains Why Corporate Profits Keep Going Up
9 snips
Jun 26, 2023 James Montier, a strategist at GMO known for his insights on value investing, reflects on his previous predictions about corporate profit margins. He discusses why profits have remained high, despite expectations of decline, and examines the link between elevated corporate earnings and inflation. Montier also explores U.S. fiscal policy's impact on profitability and how government spending contributes to economic stability. Additionally, he analyzes the trend of increased dividends over reinvestment, shedding light on the dynamics of today’s market.
AI Snips
Chapters
Books
Transcript
Episode notes
Incorrect Profit Prediction
- In 2012, James Montier predicted a profit margin mean reversion, citing unsustainable government deficits.
- However, he was wrong, as deficits remained high, influenced by the post-GFC hangover and Japan's economic trajectory.
Valuation's Impact on Stock Returns
- Despite high corporate profits, stock market performance over the last decade was primarily driven by valuation increases.
- This raises concerns for value-based investors like Montier, as multiple expansion can be a cause for concern.
Dividends and Margin Expansion
- Increased dividends are noteworthy, possibly due to increased corporate concentration.
- However, the combined effect of dividends and investment hasn't significantly driven margin expansion.
