Grantham Sets the Record Straight

In a recent Barron’s article, Boston-based asset management firm GMO’s co-founder Jeremy Grantham sets the record straight after what he calls “a few misquotes and misunderstandings by journalists.” The journalists, writes Grantham, implied that he believes high share prices are here to stay and that “regression to the mean has ended. This is, of course,” he asserts, “inaccurate, as readers of my quarterly letters know.” Grantham emphasizes his belief that the speed of mean regression has abated and become “sticky.” The slowdown, he explains, has occurred because “nearly all of the factors causing it are themselves unlikely to change fast. […]

Grantham Says Higher Valuations Will Remain

“The market can stay irrational longer than the investor can stay solvent”, writes Jeremy Grantham in a recent Barron’s article. Grantham addresses the fact that, since 1996, the market mean PE ratio has risen by 65% to 75%. He covers various periods in history, respective rises and crashes, showing that while there are always oscillations they have settled at a much higher PE: He also notes that profit margins have grown by 30% and represent a higher share of GDP, referring to it as “double counting: above-average profit margins times above-average multiple will give you very much above-average price to […]

Jeremy Grantham on the Next Big Investment Drivers

In a recent interview with Wealth Management.com, the founder of management firm GMO shared his insights on how the market has changed and where opportunities are going forward. Between 1935 and 2000, says Grantham, the market was “orderly” and experienced “mean reversion,” but it has since become more complicated. “Since 1998, price-earnings ratios have averaged 60 percent higher than the prior 50 years, and profit margins have averaged 20 to 30 percent higher. That’s a powerful double whammy,” he says. Grantham says that while the current market “doesn’t feel like a bubble,” we are “climbing the wall of worry.” He […]

Grantham: Current Market is an “Anti-Bubble”

The U.S. market is unlikely to “go bang” the way some have in the past, says Jeremy Grantham, chief investment strategist and co-founder of asset management firm GMO. In a recent Barron’s article, Grantham argues that we are not facing a “classic bubble, not even close.” In Grantham’s opinion, it is more likely that a correction, or mean reversion, will be “slow and incomplete,” leading to “dismal consequences for investors: we are likely to limp into the setting sun with very low returns.” He cites factors such as the decade-long decline in interest rates and a shift in the global […]

“Presidential Cycle” Stunted by the Fed says Grantham

The phenomenon of robust stock market gains during the third year of a president’s term—coined the “presidential cycle” by fund manager Jeremy Grantham—may have been “killed off” by the Fed, according to an article in the Financial Times. Research conducted by Grantham, founder of the GMO fund management group in Boston, analyzed stock gains during the first, second and fourth years of presidential terms going back to 1932 and found that average gains during those years were 0.2% per month as compared to between 0.75% and 2.5% during the third year. This led to his prediction that the U.S. market […]