In his latest article, ‘Rising Toxicity and the Threat to Capitalism and Life Itself,’ Jeremy Grantham issues sobering warnings that should give every investor pause. We’re witnessing the end of an era of smooth, consistent growth, and the investment strategies that delivered reliable returns for decades may soon become obsolete.
As Grantham bluntly puts it: “Investing (and living for that matter) will never be the same again! Never again, I believe, will it be as easy as the last 75 years.”
The new reality? A world where economic shocks arrive “quicker and more painfully than has been the case since World War 2.” Grantham notes these shocks have already begun manifesting in climate damage, public health crises, and demographic decline.
What’s particularly troubling is how few investors seem to notice the slowdown in global growth, masked as it was by China’s “unrepeatable performance” of 50x GDP growth since 1980.
In this environment, Grantham offers a simple but profound investment mantra: “resilience and sustainability.” The companies that will thrive aren’t necessarily those with the highest growth projections, but those best equipped to weather constant disruption.
“The ability to withstand climate shocks, economic shocks, and social instability must all increase,” he argues, noting that “the value of resilience will steadily increase” as societies become more fragile.
His specific advice cuts against much conventional wisdom:
1. Avoid leverage at all costs – Calling financial leverage “the very opposite of resilience,” Grantham warns against companies (or strategies) dependent on borrowed money. In a world of frequent shocks, debt becomes a lethal vulnerability.
2. Seek quality over hype – “Look for high-quality stocks with the ability to withstand an increasingly risky world,” he advises, noting that “the failure rate of marginal, levered companies will increase.”
3. Question optimistic valuations – With U.S. markets priced at “one of the highest P/E’s in history,” Grantham dryly comments that this assumes “the next 50 years will be heaven.” His response? “I wouldn’t hold your breath.”
The investment implications are clear: The strategies that generated easy returns in the stable post-war period may prove disastrous in an era of constant disruption. Companies with bulletproof balance sheets, sustainable business models, and operational flexibility will likely outperform their more leveraged, growth-at-any-cost competitors. As Grantham suggests, investors need to fundamentally rethink their approach – because the rules of the game have changed.
You can find the entire article here:
Jeremy Grantham – Rising Toxicity And The Threat To Capitalism And Life Itself
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