Jeremy Grantham: We're Watching A Slow-Motion Train Wreck

Jul. 31, 2007 10:44 AM ET
Jeremy Grantham profile picture
Jeremy Grantham

jeremy granthamGMO's letters to clients are important reading for money managers: Jeremy Grantham's focus on long term investing, asset allocation and valuation gives him broad perspective, and his track record is outstanding.

Here's an excerpt from Grantham's 2Q 2007 letter, entitled 'The Blackstone Peak and the Turning of the Worms':

In 40 years I believe I have been offered three obvious and extreme opportunities to make - or at least save - money. The first in 1974 was presented by the extreme undervaluation of small cap stocks in absolute terms – many were below 5x earnings and even more yielded over 10%. And compared to the Nifty Fifty – the great high quality franchise stocks – they were almost ludicrously underpriced.

The second opportunity was in 1999 and 2000 when the extraordinary overpricing in absolute terms of growth stocks, especially technology and the internet, meant that in round numbers everything else was relatively reasonable and some assets, notably real estate and U.S. TIPS, were simply very cheap, even in absolute terms.

Well, the third great opportunity is now upon us in my opinion, and that is anti-risk. It is almost certainly the most important of the three because of its diffusion across assets and countries. That is the good news, for most of the time we have to make do with modest opportunities and this one is the real McCoy.

The bad news is that for equity managers the first two opportunities were easy to spot and easy to execute. Anti-risk in comparison is a diffused and complicated opportunity, and is as much or more in fixed income with all its new complexities as it is in equities. The ideal way of playing this third great opportunity is perhaps to create a basket of a dozen or more different anti-risk bets, for to speak the

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Jeremy Grantham profile picture
Legendary investor Jeremy Grantham serves as Chairman of the Board of Grantham, Mayo Van Otterloo (GMO) and oversees quantitative products and investment strategies. Before GMO’s founding in 1977, Mr. Grantham was co-founder of Batterymarch Financial Management. Prior to helping found Batterymarch, he was a portfolio manager at Keystone Custodian Funds, a management consultant with Cresap McCormick & Paget, and an economist with Royal Dutch Shell. Mr. Grantham earned his undergraduate degree from the University of Sheffield (U.K.) and an M.B.A. from Harvard Business School. Note: Mr. Grantham is not an active contributor to Seeking Alpha; rather, SA editors excerpt regularly from Mr. Grantham's public commentary. Visit GMO (

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