Jeremy Grantham is a British investor and co-founder and chief investment strategist of Grantham Mayo van Otterloo (GMO), a Boston-based asset management firm. GMO is one of the largest managers of such funds in the world, having more than US $97 billion in assets under management as of December 2011. Grantham is regarded as a highly knowledgeable investor in various stock, bond, and commodity markets, and is particularly noted for his prediction of various bubbles. He has been a vocal critic of various governmental responses to the Global Financial Crisis. Grantham started one of the world's first index funds in the early 1970s.
Grantham's investment philosophy can be summarized by his commonly used phrase "reversion to the mean." Essentially, he believes that all asset classes and markets will revert to mean historical levels from highs and lows. His firm seeks to understand historical changes in markets and predict results for seven years into the future. When there is deviation from historical means (averages), the firm may take an investment position based on a return to the mean. The firm allocates assets based on internal predictions of market direction.
Views on market bubbles and the 2007-2008 credit crisis
Grantham has built much of his investing reputation over his long career by correctly identifying speculative market "bubbles" as they were happening and steering clients' assets clear of impending crashes. Grantham avoided investing in Japanese equities and real estate in the late eighties, as well as technology stocks during the Internet bubble in the late nineties.
In GMO's April 2010 Quarterly Letter Grantham spoke to the tendency for all bubbles to revert to the mean saying:
"For the record, I wrote an article for Fortune published in September 2007 that referred to three “near certainties”: profit margins would come down, the housing market would break, and the risk-premium all over the world would widen, each with severe consequences. You can perhaps only have that degree of confidence if you have been to the history books as much as we have and looked at every bubble and every bust. We have found that there are no exceptions. We are up to 34 completed bubbles. Every single one of them has broken all the way back to the trend that existed prior to the bubble forming, which is a very tough standard. So it’s simply illogical to give up the really high probabilities involved at the asset class level. All the data errors that frighten us all at the individual stock level are washed away at these great aggregations. It’s simply more reliable, higher-quality data."
In his Fall 2008 GMO letter, Grantham commented on the underlying causes of the world credit crisis:
"I ask myself, ‘Why is it that several dozen people saw this crisis coming for years?’ I described it as being like watching a train wreck in very slow motion. It seemed so inevitable and so merciless, and yet the bosses of Merrill Lynch and Citi and even [U.S. Treasury Secretary] Hank Paulson and [Fed Chairman Ben] Bernanke — none of them seemed to see it coming.
I have a theory that people who find themselves running major-league companies are real organization-management types who focus on what they are doing this quarter or this annual budget. They are somewhat impatient, and focused on the present. Seeing these things requires more people with a historical perspective who are more thoughtful and more right-brained — but we end up with an army of left-brained immediate doers.
So it’s more or less guaranteed that every time we get an outlying, obscure event that has never happened before in history, they are always going to miss it. And the three or four-dozen-odd characters screaming about it are always going to be ignored. . . .
So we kept putting organization people — people who can influence and persuade and cajole — into top jobs that once-in-a-blue-moon take great creativity and historical insight. But they don’t have those skills.”
Grantham focused on the issue of personal traits and leadership in trying to explain how we reached the current economic crisis.
Views on fossil fuels and the Keystone pipeline
Grantham has repeatedly stated that the rising cost of energy - the most fundamental commodity - between 2002 and 2008 has falsely inflated economic growth and GDP figures worldwide and that we have been in a "carbon bubble" for approximately the last 250 years in which energy was very cheap. He believes that this bubble is coming to an end. He has stated his opposition to the Keystone Pipeline on the basis of the ruinous environmental consequences that its construction will bring to Alberta and to the entire planet due to the contribution that burning the extracted oil would make to climate change.
Jeremy, together with Hannelore Grantham, established the Grantham Foundation For the Protection of the Environment in 1997. Substantial commitments have been made to both Imperial College London and London School of Economics to establish the Grantham Institute for Climate Change and the Grantham Research Institute on Climate Change and the Environment, respectively, which will enable both institutions to build on their extensive expertise in climate change research. The 2011 tax filing for the Grantham Foundation for the Protection of the Environment shows the Foundation donated $1 million to both the Sierra Club and to Nature Conservancy, and $2 million to the Environmental Defense Fund that year. The Foundation has also provided support to Greenpeace, the WWF and the Smithsonian. Until 2012 Grantham funded a $80,000 prize for environmental reporting.
Awards and Honours
- 2009 Honorary degree, Imperial College, London.
- 2010 Honorary degree, The New School, New York.
- 2012 Honorary degree, The University of Sheffield.
- Charlie Rose Show Interview with Jeremy Grantham Accessed May 11, 2013
- Paul B. Farrell (1 December 2009). "Obama's 'predictably irrational' economic policies". The Wall Street Journal (MarketWatch).
- Katherine Jimenez (16 June 2010). "Housing market a 'time bomb' says investment legend.". The Australian.
- Leo Hickman (12 April 2013). "Jeremy Grantham, environmental philanthropist: 'We're trying to buy time for the world to wake up'". The Guardian. Retrieved 13 April 2013.
- JG Letter
- GMO Quarterly Letter, April 2010
- "GMO Quarterly Letter Fall 2008 Part I #
- Nick Summers (8 August 2013). "GMO's Jeremy Grantham on Climate Change and Investable Ideas". BloombergBusinessweek. Retrieved 13 April 2013.
- Imperial College, London (2009). "News and Events". Imperial College. Retrieved 16 April 2013.
- The New School (2012). "Honorary Degrees". The New School. Retrieved 17 April 2013.
- The University of Sheffield (2012). "ABC singer takes centre stage in honorary degree ceremonies". University of Sheffield. Retrieved 16 April 2013.
- GMO Website
- "Can Jeremy Grantham Profit From Ecological Mayhem?," The New York Times Magazine, August 11, 2011
- Where This Bear Is Putting His Honey Bloomberg Businessweek March 18, 2002, Lewis Braham. Retrieved July 26, 2011.
- The Grantham Prize
- The Grantham Foundation
- Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever
- Jeremy Grantham on population growth, China and climate sceptics by Leo Hickman, The Guardian 15 April 2013