MIB: Grantham and the Zero-Sum Game

Investors should think about markets as if they were spectators watching players at a poker table. Some will win, some will lose, but the net takeaway for the table is zero. Jeremy Grantham of GMO concluded that for most investors, buying the entire table, instead of betting on any one manager, was the best strategy to pursue. After paying an ante of 1 to 2 percent, it was clear the entire table was a zero-sum game among all of the players (aka, investing managers).

This was in 1971, before commercial indexing was a product which could be purchased. Grantham and Dean LeBaron tried to create one, selling index portfolios to the institutional investors. Pension and Investment magazine jokingly called it “the most talked about product with no business.”

Grantham and his wife established the Grantham Foundation for the Protection of the Environment, and moved 98 percent of his sizable wealth into it. Data shows only 2 percent of all philanthropic efforts goes towards environmental causes – even as we are about to pass the point of no-return in terms of global warming.

His favorite books are here; transcript of our conversation is posted here.

You can stream/download the full conversation, including the podcast extras on iTunesBloombergOvercast, and Stitcher. Our earlier podcasts can all be found at iTunesStitcherOvercast, and Bloomberg.

Next week, we speak with Bethany McLean, contributing editor to Vanity Fair, and author of Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron, which was later made into a documentary. Her most recent book is Saudi America: The Truth About Fracking and How It’s Changing the World.