Grantham: This is a bubble, this is serious

The Rules of Investing

Livewire Markets

Jeremy Grantham is famous for his ability to pick bubbles. The co-founder and Long-Term Investment Strategist at GMO Investment and Asset Management correctly called the Japanese equity bubble in the late '80s, and the tech bubble in the late '90s and early 2000s. All through 2007, he warned investors of the bubble, telling investors in a September ’07 article for Fortune Magazine:

As wonderfully favorable factors cool off, asset prices will be under broad pressure, and risky assets will be under extreme pressure. If the credit crisis gets out of control, this will happen quickly and painfully. - Jeremy Grantham, September 2007

But Grantham is no "permabear". In March ’09, when many investors capitulated, he wrote ‘Reinvesting when terrified’, telling investors that it was time to start putting cash to work, as equities were greatly undervalued.

We now believe the S&P is worth 900 at fair value or 30% above today’s price. Global equities are even cheaper. - Jeremy Grantham, March 2009

In an exclusive interview that runs for nearly two hours, Grantham explains why he believes we’re in the late stages of another great bubble and his expectations for when it will come unravelled. He also explains why others fail to act in the face of bubbles, and we discuss some of the assets best placed to weather the storm.

If you prefer to read than listen, here's a summary of the key points:

Macro
6 essential takeaways from my exclusive interview with Jeremy Grantham

Timestamps and topics discussed

  • 3:35 - His lessons from investing during the 1970s high inflation period
  • 7:57 - The link between high inflation and value outperformance
  • 10:30 - How he created the world's first index fund
  • 23:19 - How Jeremy identifies bubbles
  • 41:42 - The appeal of lumber investment and insights into agriculture
  • 53:46 - Are we in a reversal of the commodities trend?
  • 1:07:35 - Why is the current situation different to the post-GFC rally in equities?
  • 1:18:00 - What are the best assets to invest in during an inflationary period?
  • 1:32:57 - The main drivers of the current asset bubble unwinding, and how long he expects it to take.

Hear more from Jeremy Grantham

Stay up to date with all of Jeremy's investment insights and ideas by following his profile and you'll be notified every time he posts a wire. For more information on GMO Investment and Asset Management please visit their website.

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The Rules of Investing is one of Australia's top investing podcasts. We interview the leading investment minds from Australia and overseas to better understand their processes and philosophy. After launching in October 2017, there have been over...

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