The transcript from this week’s MIB: Jeremy Grantham, GMO, is below.
You can stream/download the full conversation, including the podcast extras on iTunes, Bloomberg, Overcast, and Stitcher. Our earlier podcasts can all be found at iTunes, Stitcher, Overcast, and Bloomberg.
This is Masters in Business with the Barry Ritholtz on Bloomberg Radio.
BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, what can I say? Jeremy Grantham, he is a legend, the founder of GMO, he is literally the G in GMO.
He is the chairman of the firm as well as sitting on the asset allocation committee. He has had a fascinating career, I could have spoken to him for, but we only had him for a finite amount of time for his next, actually, dinner, we were recording this late on a Thursday night. It’s dark out, the Bloomberg Studios are empty, it’s kind of interesting evening recording.
But what can I tell you? His track record is astonishing, he’s created a ton of wealth over the years, his philosophy of investing is pretty straightforward, be a value investor, be aware of the data, understand when things are getting out of hands, you may not get the timing perfect, but when things become excessively pricey when the animal spirits run amok, when all the bubbles begin to form, you know how that ends and it’s never well.
The history he’s put together of warning and positioning himself correctly before the 19 late ’80s Japanese bubble popped, the dotcom bubble in the late ’90s, the great financial crisis, his timing has been pretty extraordinary. He’s been pretty bearish on US stocks over the past few years and has become much more enthusiastic for emerging market value stocks.
He has warned if you jump into E.M., you are going to feel foolish and uncomfortable for a period of time and not sure first buying opportunity then it becomes even more painful that your second buying opportunity, but if you have a 10 or a 20 year window, that’s where you want to be.
We discussed philanthropy, he has basically donated all of his money to his charitable foundation and of course since it was Jeremy Grantham, we talked a lot about climate change, it’s his favorite philanthropic issue and he’s basically warns that if we don’t do something and soon, there ain’t going to be a whole lot of people around in 50 years, that we’re standing on the precipice of a catastrophic set of changes.
And he says he approaches climate change the same way GMO has approach in investing, he looks at the data, he looks at the overall trend and makes what he believes are intelligent, reasonable decisions based on that data and those decisions have led him to be extremely cautious about what’s coming our way courtesy of rising carbon in the atmosphere caused primarily by burning, wood, coal, and oil and gasoline and we need to figure out if we want to be here a century from now or not.
He talked about the propaganda industry that’s been pushing back against this, how the oil industry and the Koch brothers have funded a disinformation campaign as he said, brilliantly, quite successfully and lots of people no longer believe in science, because it’s profitable for these companies to have the public not believe in science.
I can talk about our conversation for hours and hours but rather than listen to me continue to babble, with no further ado, my conversation with Jeremy Grantham.
I have an extra special guest this week, his name is Jeremy Grantham and he is one of the cofounders of GMO where he is also chief investment strategist, a member of the asset allocation team and a member of GMO’s Board of Directors. Previously he was cofounder of Batterymarch Financial Management, he began his career as an economist with Royal Dutch Shell, he did his undergraduate work at the University of Sheffield, got his MBA from Harvard Business School, Jeremy Grantham, welcome to Bloomberg.
JEREMY GRANTHAM, FOUNDER, GMO: Hello. A pleasure to be here.
RITHOLTZ: So let’s start with Batterymarch Financial Management, that was 1969, GMO was 1977, I’m curious the ’70s were not especially fun period to be an equity investor, how much of your investing philosophy was shaped by your experience in the 1970s?
GRANTHAM: The ’70s were hugely kind to us, contrary to what you’re suggesting. We had a battle plan to invest all our money in small-cap value before institutionally they had invented small or value, everybody invested with Morgan Guarantee Trust and they bought the nifty 50, the great Avons and IBM’s and we bought Great Lakes Dock and Dredge, which no one had heard off and then they went down with the rest of the market but no more badly than the Avons, they all — everybody went down 50 percent in the great ’73 — ’74 decline.
GRANTHAM: And then where they rallied for a year, we just rallied and rallied and the small-cap inherited the Earth and between ’74 and ’82, our small cap outperformed by well over 100 percentage points.
RITHOLTZ: So did that experience affect your philosophy, did that make you more of a small cap and value factor investor?
GRANTHAM: It made me much more a devotee of trying to find which group might do better. And ’82, we basically abandoned small-cap and went into large-cap because they done so well, so we gave up our 10 years of background together, Dick Mayo and me …
RITHOLTZ: Being the M in GMO.
GRANTHAM: Being the M in GMO, and changed because when something has a run and beats the market by 100 points, you better be ready to abandon ship and so we did.