GMO, which stands for Grantham, Mayo, Van Otterloo & Co. LLC, is a global investment management firm with more than $100 billion under management for institutional investors. The firm was founded in 1977.

GMO does thoughtful investment research and are conservative, value-oriented investment managers. They produce interesting "7-Year Asset Class Return Forecasts" in which they estimate based upon fundamentals the expected annualized returns over the next 7 years from major classes of stocks and bonds.

Their latest forecast highlights the tremendous potential now in stocks, especially international equities, and not in bonds, except in so-called emerging markets, which I would not recommend (the expected returns are lower than in stocks and bonds still have downside risk).

According to the GMO 7-year forecast published as of October 31, 2008, international equities should return about 11 to 13 percent per year on average over the next 7 years whereas U.S. stocks are estimated to return just under 8 percent per year. GMO classifies "U.S. high quality" stocks as having 12 percent per year return potential. The following stocks comprise the bulk of the companies' holdings in its quality U.S. stock portfolio:


Wal-Mart Stores Inc.         

Microsoft Corp.                 

Johnson & Johnson           

Pfizer Inc.                            

Exxon Mobil Corp.                 

Coca-Cola Co.                      

PepsiCo Inc.                        

Chevron Corp.                     

Procter & Gamble Co.           

UnitedHealth Group Inc.       

Qualcomm Inc.                   

Oracle Corp.                       

Home Depot Inc.                

Cisco Systems Inc.             

Eli Lilly & Co.                     


Among the major classes of bonds, note the low return potential GMO sees with government bonds. This makes sense if you consider the fact that during the financial markets' turmoil of 2008, safety minded investors have been selling stocks and piling into highly rated bonds like those issued by stable governments. This has driven down the price of stocks and driven up the price of bonds.

Smart, value oriented investors are and will be selling safe bonds and investing more in stocks. That's what ultimately stops a major market decline like we've seen in 2008. Stocks get cheap enough to attract return-minded investors with courage and cash.

Copyright Eric Tyson, 2008 - 2010 all rights reserved.

Eric Tyson is the only best-selling personal finance author who has an extensive background as an hourly-based financial advisor and who does not accept speaking fees, endorsement deals or fees of any type from companies in the financial services industry or product or service providers recommended in his articles, books and his publications.