Jeremy Grantham - A Historic Market Bubble

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (2:06)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
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**Patrick O'Shaughnessy** (2:31)
My guest today is Jeremy Grantham. Jeremy is the long-term investment strategist and co-founder at GMO.
Jeremy has an encyclopedic knowledge of the history of markets, which made it such a pleasure to have him back on the show. In this conversation, we discussed the three key signs of a bubble, why Jeremy believes we're in a bubble right now, and how it's being led by retail rather than institutional investors. We close with the important role that demographics and productivity will play over the next few decades across the world. Please enjoy my conversation with Jeremy Grantham. Jeremy, I've been excited to do this with you again. The last time we spoke in early July of last year, we were still in the throes of the early stages of the pandemic and the market was about 35% below where it sits today.
Not a whole ton has improved about the economy, the market has done quite well. And the topic of our conversation today, I think is going to be your view on the state of this equity market and its potential to be in the bubble category with some of the great bubbles that you've studied as a market historian. So to begin, I would just love to hear your broad market perspective through what lenses you're viewing this market and what history might teach us.

**Jeremy Grantham** (3:41)
Incidentally, I've been making a hobby of collecting the many measures of speculation and overpricing. The simplest low tech way of doing that has just been to take screenshots.
So I have an army of little measures. They're pretty clear to me. I think about 80% of them of the value measures have this one higher than 2000, which was the champion way over 1929, a 2000 tech bubble was a real hero, trailing 12-month earnings was 35 times earnings and then 1929, it had peaked at 21 and it never got back to 21 until they run up to 2000 When you compare that 2000 peak to today, and you change the value approaches a little bit here and a little bit there, you find about 80% of them have today higher and about 20% of them still below 2000 So I conclude on the sheer weight of numbers, this is more impressive even than 2000 on value. Then of course, in terms of timing, I've always thought that other things were more important than value. The thing you have to bear in mind if you're going to use value as a timing mechanism is that in Japan it went to 65 times. It had never sold over 25 times in the Japanese cycle that peaked in 89.9 until it did, and then it went to 65 I like to say that that's the nightmare from which value managers wake up at 3 AM sweating in fear. If you look at the straightforward vanilla, Chile PE is higher in 2000 If you normalize for profit margins, which I prefer because I believe this chunk of time since about 2000 is historically abnormal.