Jeremy Grantham – Bubbles, Value Investing, and the Long Game at GMO (EP.493) - Capital Allocators – Inside the Institutional Investment Industry Recap

Podcast: Capital Allocators – Inside the Institutional Investment Industry

Published: 2026-03-23

Guests: Jeremy Grantham

What Happened

Jeremy Grantham, co-founder of GMO, shared insights from his extensive career, focusing on the nature and impact of market bubbles. He drew parallels between historical bubbles, such as those involving railroads and the internet, with current trends in AI and technology stocks like NVIDIA, which he sees as potentially overdone. Grantham emphasized the cyclical nature of bubbles, noting that historically they return to their pre-bubble trends.

Grantham's early experiences, like investing in Acro Engineering and playing Monopoly, shaped his approach to investing, which emphasizes value techniques and long-term strategies. Despite early setbacks and disagreements, such as his departure from Battery March, he co-founded GMO, focusing initially on small-cap and value stocks during the Nifty 50 era, achieving significant success.

During the tech bubble of 1998-2000, GMO faced challenges but ultimately benefited from market corrections, as their strategies allowed them to gain while broader markets fell. Grantham highlighted the importance of independence in investing, which enabled GMO to take risks others could not, leading to substantial growth.

Grantham's discussion included the U.S. housing bubble of 2005-2007, where he predicted its rise and fall, reinforcing his belief that major bubbles follow predictable patterns. He advised against U.S. stocks, suggesting a focus on non-U.S. developed value stocks and emerging country value stocks.

His foundation is heavily invested in green technology, reflecting his commitment to environmental philanthropy. Grantham's focus on climate change and sustainability is driven by his concern over human biases towards short-term thinking and optimism. He also called attention to demographic trends in countries like Japan, China, and South Korea, which could have long-term economic implications.

Grantham criticized figures like Alan Greenspan and Lawrence Summers for their roles in financial crises, advocating instead for sustainable capitalism. He noted that market tendencies to extrapolate current conditions rather than anticipate future changes can lead to significant oversights, stressing the importance of contrarian thinking in investment strategies.

Key Insights

• Jeremy Grantham sees historical investment bubbles, such as railroads and the internet, as having great ideas that get overdone. He compares current trends in AI and technology stocks, like NVIDIA, to these past bubbles, suggesting they may be overvalued.
• Grantham's investment strategy emphasizes independence and long-term thinking, which allowed GMO to grow from $22 billion to $165 billion during the tech bubble crash. Their strategy involved focusing on non-U.S. stocks and emerging market value stocks.
• Grantham's foundation invests heavily in green technology and sustainable initiatives. He aims to address climate change and advocates for awareness of the environmental impact of human actions, highlighting issues like declining fertility rates and rising toxicity.
• Grantham highlights the importance of career risk in investing, referencing John Maynard Keynes' idea that it's safer to follow the crowd. He argues that independent thinking is crucial for identifying and responding to market corrections and bubbles.