Investing guru Jeremy Grantham riffs on the stock market, the housing bubble, and why our treatment of the environment could be our riskiest bet of all. Photograph by Steve Moors.All you need to know about investing legend Jeremy Grantham sits just to one side of his desk, overlooking the breezy wharves of Boston. It's a massive stone Buddha, standing about four feet high and weighing hundreds of pounds, that made it all the way here from ninth-century Java.
First, the Buddha's serene gaze implies "everything in moderation," meaning bubbles come, and bubbles go, but things always drift back to the middle. And second, Grantham, 68, got the statue for an absolute steal during the Asian currency crisis back in the late '90s, when antiquities from the region just weren't selling. "So I called up Sotheby's after the auction and made a bid far below the reserve price," he remembers. "They said, 'Yes, please!'?"
Now that's the instinct of a true value investor.
And it's the kind of attitude that has made Grantham - chairman of investment-management firm Grantham, Mayo, Van Otterloo & Co. (GMO) and its $121 billion in assets - the kind of money manager that other money managers listen to. Understandable, when you consider that he has popped up at the most revolutionary movements in modern investing. Investments that are indexed to track the market's performance? He was a pioneer. Small-cap investing, for people who want a piece of tiny-but-growing firms? His too. International investing, to take advantage of markets around the world? He was among the first. Quantitative investing, for "numbers nerds" who are able to find value in reams of company data? You get the picture.
"If there's anybody in this whole business who calls a spade a spade, everyone would say that person is Jeremy Grantham," says John Bogle, an investing legend and the founder of mutual-fund giant the Vanguard Group. "He pulls no punches and is one of the top two or three individuals in this business. He's a straight shooter in a business where that's not a customary characteristic."
It's not cheap to profit from Grantham's market wisdom, unfortunately: The price of poker to be a GMO client, most of which are institutions, is a minimum $10 million. But for the rest of us, GMO also
subadvises a number of mutual funds available to the general public through Evergreen Investments, John Hancock Funds, and the Vanguard Group.
Grantham isn't just a market geek, though the messy stacks of data on his desk might give that impression. He also has some amusing personal quirks, like his obsession with textiles (he collects everything from old Uzbek bridal embroideries to fifteenth-century swaths of Venetian velvet).
But if there's one thing he's dead serious about, it's the world's casual ignorance of coming environmental crises. Much like his approach to the markets, he's peering long-term at what's heading down the pike, and he doesn't necessarily like what he sees. Grantham, who has started a foundation for environmental protection with his wife, Hannelore, isn't sure enough people are paying attention.
"It just seems obvious to me," he says. "This is where we live, so why mess it up? We're the richest society ever, so we need a version of the Manhattan Project to protect the environment. What we're facing is serious - and irreversible."
Playing Defense: Surviving and Thriving in a Downturn
If Grantham is as right about the environment as he was about the Internet bubble, then we're all in a heap of trouble. In the late '90s, when tech stocks were skyrocketing and everyone and their cab driver were getting rich, he was practically yelling from the rooftops about the coming bust that would wipe everyone out.
It cost his firm - big. As investors turned away from his conservative philosophy and rode the bubble instead, GMO lost 45 percent of its assets under management at the time - but because of market conditions, the company ended up sinking only 33 percent, from $30 billion to $20 billion. Going against the conventional wisdom "brought the firm to its knees," Grantham remembers. He and his fellow managers were seen as fuddy-duddies who had lost their way, old-fashioned cranks who just didn't get the realities of the new Internet age.
But in 2000, when the stocks all came crashing down, his value-oriented philosophy got a bittersweet vindication. While the investors who had abandoned him were losing their shirts, those who had stuck with him emerged from the bust relatively unscathed. "We looked like heroes," he says. "But it was a pretty obvious bet. By any standard measure, everything was screaming at you to duck."
And that nicely sums up his approach to the markets. At any given moment, some asset classes may be rocketing to bubblelike proportions, and others may be out of favor and absolutely cheap. So buy the bargain, and don't shovel your money into assets that are already ridiculously expensive, because everything will eventually revert back to the mean.