October 21, 2024 | Grantham: The Bigger The New Idea, The More The Market Overshoots

For those able to hear truth and facts…

Today on the podcast, we’re delighted to welcome back Jeremy Grantham. Jeremy is the long-term investment strategist at his namesake firm, Grantham, Mayo, Van Otterloo & Co., or GMO, which he cofounded in 1977.  Here is a direct audio link.

“Bubbles and enthusiasm, ecstasy, they’re all kind of closely related. And I like to say it’s not an accident that the most euphoric periods in the market’s history, all four of them really—1929, 1972, tech bubble of 2000, the great financial crash, 2008, and you could add, 2011, December. Those are the five euphoric points, and the first four, it’s not an accident, they’re all followed, not by the best economic times and the best market returns. They are followed by the four worst economic setbacks and the four worst periods of stock market return. What a strange coincidence.

We all learned at business school that high P/Es are meant to be reflecting the best possible future. And what we find is the highest four P/Es, highest amount of euphoria are precisely followed by the four worst economic outcomes: the Great Depression, the Great Recession of ’73-’74, the worst since the Depression, the crash and the recession after the tech bubble burst, and the real moment of truth when the great financial crash occurred, when the whole financial system of the developed world teetered on the edge of total meltdown. So, what a strange paradox that the market’s predictive power is precisely, perfectly the opposite of what we were taught.”

Danielle Park October 21st, 2024

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