He may not be a household name among retail investors but Jeremy Grantham’s (pictured) legendary status in serious financial circles continues to grow.
A value investor unafraid to go against the crowd, Grantham (70) profited by eagerly snapping up small-cap stocks decimated in the bear market of 1974 and was bullish in 1982 when rock-bottom valuations led to the beginning of the longest bull market in history.
Soaring valuations in the mid- 1990s saw Grantham turn bearish, however, and he lost clients due to his “fuddy-duddy” refusal to touch high-flying tech stocks – a “psychologically painful” experience.
A keen student of bubbles and crashes, he predicted the Japanese market crash of 1989.
In January 2000, he correctly predicted a similar fate for Nasdaq stocks, estimating that the SP 500 would fall by 50 per cent and the Nasdaq by 70 per cent (the SP did indeed halve while the Nasdaq went on to fall by 78 per cent).
In 2006, Grantham described the US housing market as a “classic bubble”. A year later, he bemoaned the “first truly global bubble in all assets”, adding that he had “never been more bearish”.
After the Dow surpassed 14,000, he scoffed at “the greatest sucker’s rally in history”, and famously described the “overstretched, overleveraged financial system” as “a very slow- motion train wreck” with “at least one major bank” likely to fail.
Having been bearish on US (but not international) equities for the best part of 15 years, Grantham shattered his reputation as a perma-bear by turning bullish in the aftermath of the collapse of Lehman Brothers, when stocks finally fell to “fair value”. The “buying opportunity of the decade”, however, was likely to be followed by “the buying opportunity of a lifetime”, with market crashes typically overshooting to the low side “by 30 per cent to 50 per cent”.
The carnage in March saw the SP 500 trade 30 per cent below fair value and Grantham wrote of the necessity of “reinvesting when terrified”. The massive jump since then has further cemented his reputation as an investment titan.
Life is simple, Grantham wrote at the time: invest too much, too soon and you will regret it. Invest too little at a time of opportunity, however, and “you deserve to be shot”. The key is to “model these competing costs and regrets” by having a schedule for further investments “contingent on market declines”.
Right now, he is urging investors to ignore Mr Market’s exuberance and underweight equities in the event of further gains.
- PROINSIAS O’MAHONY
