POSITION: Chairman, Co-Founder, Grantham Mayo, Van Otterloo (GMO)
LOCATION: Boston Education: University of Sheffield; Harvard Business School
Until recently, the 70-year-old co-founder of institutional money manager, Grantham Mayo Van Otterloo (GMO), was most famous for loudly warning investors to stay out of U.S. equities in October 1998 as the internet took off, pulling stocks with it. Then in 2006, he warned investors that global equity markets were priced for a crash; in 2007, he said the housing bubble was about to burst. Of course, we know how those predictions panned out, and the man once deemed the most bearish of bears, a “perma-bear,” has been vindicated.
Lately, proven bubble spotter that he is, Grantham has been railing against a most famous theory that denies bubbles even exist: efficient market theory. Investors who “buy and hold” and don't make tactical adjustments to portfolios to reflect reality risk ruin, he says. Here he is in May, speaking to SmartMoney magazine: “If you believe in [efficient markets], then you don't see asset bubbles. And there's nothing as dangerous as an asset bubble … When you believe in market efficiency, it's like being on the railroad watching the locomotive coming toward you. Then you just stand your ground just for the discipline of not moving. It's ruinously expensive.”
With $78 billion under management, his opinion carries a lot of weight. Grantham has since said the S&P 500 is fairly priced at between 800 and 900 and he'll be a buyer until then. But he thinks we're in for a lengthy period of sideways markets, a time when opportunistic nibbling is in order. We all may be richer if we listen to him this time.