If American stocks are outlandishly expensive, for instance, look abroad. A prime example: A few years ago, Grantham estimated that stocks in emerging markets were cheap. So he loaded up and then benefited as equities in developing countries ­outperformed almost every other market sector.

It's those same global instincts that fuel his passion for protecting the environment - in small ways, like with the few hundred acres he and his family own in Panama that he's currently replanting with a variety of trees, and in larger ones, like with his foundation's newly minted prize that it was recently awarded for environmental journalism. "He's a very smart philanthropist," says Carter Roberts, president of the World Wildlife Fund in Washington, D.C., the world's largest privately financed conservation group. "He's always pushing and prodding me to find the right solutions. Not just by creating parks on the ground in places like East Africa or the Amazon, but in getting companies in the U.S. to source their timber and paper in a more sustainable way. It's really remarkable."

Indeed, Grantham now dreams of harnessing the power of the media to change public attitudes about the environment on an even grander scale, much like former vice president Al Gore seems to have done with his film on global warming, An Inconvenient Truth, which brought a key message to a mass audience. If public attitudes can be altered, Grantham hopes enough pressure can be brought to bear change in government behavior. And then there might be some real hope that we won't burn through all the earth's resources before we realize it.In this way, Grantham's approach to the environment is very much like his approach to investing. He searches for just the right opportunity - whether it's battling infestation in American forests or planting trees in Panama - and runs with it. "He places bets on people and ideas the same way he invests money," Roberts says. "He looks for inspiring people who have great ideas, helps refine those ideas, and then gives them the resources to take those ideas to scale. And he's been very successful at it."

Not that Grantham would trumpet the fact. He's not a limelight seeker; he's content to work behind the scenes at his cluttered desk, ferreting out the long-term trends that are going to change the markets and the world. "I just try to be right more often than not," Grantham says, smiling at the understatement. "And it's worked, I must say."

Master Class

Jeremy Grantham may seem like an unassuming type with his avuncular sweep of white hair and rumpled clothes. But when it comes to saying what he thinks, he's brutally honest - and has no fear about upending conventional wisdom. A Grantham classic: "Very hard work gets in the way of thinking." He's also famous for saying that just one or two good investing ideas a year are sufficient. (He's since amended that - to one idea every couple of years.) So we administered the truth serum and asked Grantham for his unvarnished opinion of the hot-button issues roiling the world economy.

On Oil: "It's a finite resource meeting the world's most inept energy policy. It's not renewable; we're eventually going to pump it all, and yet American drivers can't stand a higher tax on gas. Europeans live with gas at $7 or $8 a gallon, but Americans can't. It's a sacred cow."
On Real Estate: “Housing bubbles are rarer than stock bubbles, and right now it’s at its highest point ever. It’s not as volatile an asset as stocks, but we’re in the early stages of housing coming down more than it ever has before. In some markets, like Boston, it may go down 20 percent; in other markets, prices may simply flatten.”

On Hedge Funds: “Hedge funds may have changed something serious about the usual rhythms of the markets. This is $1.2 trillion, leveraged three-to-one. So it’s actually $3 trillion that’s unregulated, that can move on a dime — and does. They’re also taking very good people, so we always have to fight it out with them.”

On Bubbles: “Bubbles will always happen, as people follow the rising asset class. From time to time, things get horribly overpriced. The only thing that’s uncertain is the timing of when a bubble will end.”

On Bear Markets: “Most money managers got into the business after 1982 and have experienced a long wave of happiness. But the laws of nature have not been repealed. There are always risks that the economy could unravel. But I stay optimistic because we have a history of muddling through. So stay alive, duck, and wait for better opportunities.”