Jeremy Grantham is the chairman of the asset management firm Grantham Mayo van Otterloo (GMO), based in Boston.
Grantham has a reputation for identifying speculative market bubbles and steering his clients’ investments away from market crashes.
He avoided the collapse of the Japanese equity market in the late eighties, the dot-com crash in 2000, and warned of overvaluation of equity and credit markets in 2006.
At the start of 2021, Grantham warned that markets were in a massive super-bubble and predicted a historic crash.
“When you have reached this level of obvious super enthusiasm, the bubble always has, without exception, broken in the next few months, not a few years,” he said.
Despite the S&P 500 growing close to 27% in that year, Grantham maintained his conviction.
He conceded he was early in his prediction but called the strong momentum of the S&P 500 characteristic of how bubbles break.
Not long after his prediction, the market started to fall. Once again, Grantham was correct about a market collapse.
Commenting on the current market conditions, he said the peak of crazy behaviour is behind us.
“I think we’re now in the buy-the-dip mode, which super bubbles specialise in. You don’t have two years of buying frenzy dying overnight typically,” he said.
Grantham believes the long-term trendline in the S&P 500 is at 2,500 points, noting that most great bubbles decline to below trend and stay there for some time.
However, since 2000, the Fed has successfully prevented markets from falling below trend.
Grantham believes that due to inflation, the “Fed-put” is heavily compromised because the Fed is more limited in its options to address an economic downturn.
He believes value stocks and emerging markets are less overpriced than US stocks and could hedge against market declines.
Below is a breakdown of GMO’s US equity portfolio as of 30 June 2022.
|Name||Value ($ Million)||Portfolio Weight|
|Johnson & Johnson||$404||2.2%|
|Lam Research Corp||$320||1.7%|
|Taiwan Semiconductor Manufacturing Company (TSMC)||$209||1.1%|
|Sociedad Quimica Y Minera De Chile SA||$106||0.6%|
|156 other holdings with a portfolio weight of 0.1% – 0.5% each||$5,686||30.8%|
|539 other holdings with a portfolio weight of less than 0.1% each||$1,956||10.6%|