Episode summary
Jeremy Grantham – Bubbles, Value Investing, and the Long Game at GMO (EP. 493)
Investment Management Operations
· · 1 hr 18 min · Hosts: Ted Seides · Guests: Jeremy Grantham, Edward Chancellor
Summary
The guest traces his investing philosophy to wartime Yorkshire, where scarcity, coupons, and a strong family culture of frugality made wasting money feel wrong. He says that early obsession with numbers, gambling, and his first stock purchase taught him how much of investing is about pattern recognition, discipline, and avoiding obvious mistakes like overexpansion and excess debt.
He contrasts a brief detour into consulting with the excitement of investment management, then describes the founding of Batterymarch and later GMO. The firm’s early edge came from small-cap and value investing, where few competitors followed companies closely, and later from building quantitative systems that largely replicated the team’s judgment. But he emphasizes that great records do not immunize a firm from investor behavior: during the dot-com bubble, clients deserted value managers quickly because they wanted to own what was soaring.
From there, he lays out his core bubble framework: the biggest bubbles begin with genuinely important ideas, then overshoot badly, and always revert toward trend. He argues the current AI boom fits that pattern, with Nvidia playing a role similar to Amazon in 2000. He also ties long-term investing to long-term philanthropy, saying climate change, toxicity, and demographic decline are being ignored because people and institutions dislike unpleasant, long-horizon warnings.
Key takeaways
- The guest says wartime scarcity and a Quaker-Yorkshire upbringing embedded frugality that still shapes his investing behavior.
- He argues Batterymarch and GMO succeeded early by exploiting neglected small-cap value names and by combining judgment with quantitative screening.
- He says clients fired value managers during the dot-com boom not because they were wrong, but because they lagged a euphoric market for too long.
- He believes bubbles are identifiable by valuation extremes and by leading speculative stocks starting to underperform while the broad market still rises.
- He says AI is a serious, important technology, but that its obviousness makes a bubble almost certain, with Nvidia as the clearest excess candidate.
- He uses his foundation to back climate and green-tech ideas that may fail often but could change everything if they work.
Notable quotes
“The gray bubbles are associated with great investment ideas that get overdone”
“It has to be serious and ideally it has to be obviously serious”
“The money dwarfing any capex program in history”
“Seeing the bubble is easy. Getting the timing right is apparently impossible”
“If you own stuff that does better, who cares that you don't own the US”
How the episode opens
The gray bubbles are associated with great investment ideas that get overdone. It has to be serious and ideally it has to be obviously serious. Railroads are the best example followed by the internet.
If you see the railroads are going to change the world, then of course you want to invest. It was precisely their obviousness and their importance. Internet most people could see that it was pretty serious that it would eventually change the world.
Amazon went up six times, something like that, in 2000. Even though it was a successful idea, it went down 92%. Check it.
It went down 92% in the bust and then it rose again to inherit the earth. That isn't in a way exceptional. That's what you should expect.
So here we are with Nvidia looking like Amazon squared. The money dwarfing any capex program in history. everyone being clear in their mind that this is the biggest thing they've ever had in their lives.
And they're right. It is. That's why the investment program is almost certain to be overdone.
I'm Ted Sides and this is Capital Allocators. My guest on today's show is Jeremy Grantham, the co-founder of GMO, a hundred billion dollar Bostonbased asset management firm he co-founded in 1977. Over six decades in markets, Jeremy has been one of the most respected and outspoken voices on value, market bubbles, and long-term investing.
He recently published The Making of a Permab Bear with Edward Chancellor, an account of his career and investment lessons learned along the way. Our conversation begins with Jeremy's early lessons in frugality growing up in wartime Yorkshire and his interest in numbers and investing. We trace his career through the founding of Battery March and GMO, the golden period of value, the painful lessons of the dotcom bubble, and the challenges since.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- value investing
- market bubbles
- long-term investing
- dot-com bubble lessons
- ai investment boom
Companies and tickers mentioned
- GMO
- Batterymarch
- OWL
Watch the episode
Watch “Jeremy Grantham – Bubbles, Value Investing, and the Long Game at GMO (EP. 493)” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Investment Management Operations, this episode and its artwork belong to Ted Seides – Allocator and Asset Management Expert. Octagon is not affiliated with the show; this page is an independent summary.
