If you’ve ever wondered what it looks like when brutal honesty meets financial wisdom, Jeremy Grantham’s 2010 summer letter is a blueprint for clarity and conviction. And he doesn’t pull punches. Right from the start, he admits: “Well, I, for one, am more or less willing to throw in the towel on behalf of Inflation… Deflation has won on points.” That kind of clear-eyed call is rare in finance.
But what makes Grantham such a compelling read isn’t just his macro take—it’s the way he shines a light on investor behavior. He reminds us, again and again, that markets and investors aren’t always rational. “The market responds with much more persistent enthusiasm” to low interest rates, he says, even when the economy drags. That’s his polite way of saying investors often chase returns, not value.
Grantham also serves up a great reminder about small caps: when they’re expensive, watch out. “When they were expensive, they had been typically annihilated… but when they were cheap, they outperformed.” His point? Valuation still matters—even in speculative markets driven by cheap money.
On the flip side, he’s baffled by why high-quality stocks were being ignored. “They have been cheap for almost five years… this is unusual.” Investors, he suggests, were chasing trendy plays—hedge funds, private equity, emerging markets—while dumping the boring-but-beautiful blue chips. “This type of mispricing always has a reason… It may not be particularly rational, but there is a reason.” And that’s the kind of mispricing long-term investors should salivate over.
His bottom line is simple, and sobering: “There are no points for getting the reasons right. There are only points for knowing what actually is cheap and owning it.” Classic Grantham. The why doesn’t matter as much as the what.
And he wraps it all in a powerful reminder that we shouldn’t place blind faith in the system. “One of our central problems… is our default assumption that ‘they’ (the government) know what they are doing. Unfortunately, nothing could be further from the truth.”
In other words, do your own homework. Don’t rely on policy makers to save the day. Be wary of speculative frenzies. Look for real value, and own it—especially when it’s out of favor. That’s Grantham’s message, and it’s just as relevant today as it was in 2010.
You can find the entire letter here:
Jeremy Grantham – Quarterly Letter 2010, Summer Essays
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