During this interview with WealthTrack, legendary investor Jeremy Grantham speaks bluntly when it comes to today’s market: “All the old ratios don’t seem to work for a variety of reasons.” From the COVID stimulus to AI mania and tariff wars, Grantham sees a market shrouded in uncertainty. “No one knows what AI is going to do. It’s going to change the world. But no one knows when and how,” he says. Add to that the unpredictability of the economy, and you’ve got a recipe for volatility.
Grantham’s advice? “Be more careful than normal.” He points to historical metrics like Warren Buffett’s favorite—total market cap versus GDP—which suggest the market is wildly overvalued. “The market could easily go down by 50% and be well within its historical boundary,” he warns. But timing the market is a fool’s errand. As Grantham puts it, “The market can stay irrational longer than the investor can stay solvent.”
He’s lived this reality. During the tech bubble, GMO’s models correctly predicted a crash, but not before the market soared to “35 times earnings in March of 2000.” The result? “We lost a ton of business, maybe almost half our asset allocation business in two years and a quarter.” Investors, he notes, don’t fire you for underperforming in a bear market—they fire you for underperforming in a bull market. “In a bull market, they’re out there talking to their neighbor on the golf course, and he’s making tons of money… and so they shoot you.”
Today’s market, Grantham argues, is uniquely chaotic. The post-COVID speculative frenzy was “more impressive than anything we have seen,” with meme stocks like AMC soaring “40 times in two weeks.” While many of those fads fizzled, the broader market never corrected. Instead, AI revived the rally, creating what Grantham calls a “bubble within a bubble.”
So how should investors navigate this? Grantham’s playbook is clear: “Emphasize value, emphasize non-U.S.” He favors high-quality stocks with low debt and robust profit margins, as well as undervalued resource plays. “Resources not only are unprecedentedly cheap, but they are the only group that tends to be uncorrelated to the broad market.”
For those tied to the U.S., Grantham suggests a disciplined approach. His own family’s portfolio is heavy on “developed country value stocks,” with smaller allocations to emerging markets and cash for liquidity. “Nothing heroic,” he says.
You can watch the entire interview here:
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