Jeremy Grantham is considered a shrewd investor with a good instinct for speculative bubbles, which he has often capitalized on in the past with his company GMO. In addition to his work as a successful investor, he is a philanthropist who is particularly passionate about combating climate change.
• Young high-flyer with his own convictions
• Pioneer of countercyclical trading
• Philanthropist and climate change fighter
Strong willfulness
Born in Hertfordshire, England, and raised by his Quaker grandparents in Doncaster, Jeremy Grantham went to Scheffield University, where he studied economics. After graduating, he moved to the US East Coast, where he received an MBA from the renowned Harvard Business School in 1966. After a short stint as an analyst at a Boston company, he decided, together with his boss and another colleague, to set up his own consulting firm. A short time later, in 1971, he founded one of the world’s first stock index funds. After Grantham fell out with his co-founders, he founded the now world-famous Grantham, Mayo, Van Otterloo & Co LLC (GMO) in 1977 together with his former colleagues Richard Mayo and Eyk Van Otterloo. Grantham’s strong willfulness is also reflected in his style of investing.
The bet against the market
The company’s success is largely due to Grantham’s investment strategy. It enabled him to use the economic crises of the following years to the company’s advantage. In contrast to the widespread market efficiency hypothesis, which assumes that all available information about market activity is already priced into the market, Grantham’s theory of so-called “mean reversion” assumes irrational price fluctuations above or below the long-term average at which all market prices ultimately converge and reflect the actual fundamental market value of an investment. The reason for overvaluation of market prices are speculative bubbles, which are largely driven by irrational psychological behavior such as herd behavior.
Grantham and GMO’s approach was therefore to identify deviations from the historical average and, if possible, avoid entering during a speculative bubble and thereby paying inflated prices. Through this strategy, GMO managed to sell shares in a timely manner during the major speculative bubbles of the past 40 years, from the Japanese economic bubble at the end of the 1980s to the dot-com bubble at the end of the 1990s to the financial crisis of 2007/2008 to buy in early before the other investors after the bubbles burst. This brought big profits to GMO and gave Grantham a reputation as the Cassandra of the stock market.
Fighters of climate change
His pessimistic outlook applies not only to the stock market but also to the future of humanity, which he sees as threatened above all by climate change. Grantham is considered an outspoken philanthropist, with the fight against climate change particularly close to his heart. The Grantham Foundation for the Protection of the Environment, a research institute of the London School of Economics and Political Science, founded together with his wife in 1997, already invests millions of British pounds every year in a variety of climate projects. He wants to increase this effort even further. According to Bloomberg Businessweek, Grantham has announced that he will invest 98 percent of his net worth (around $1 billion) in fighting climate change. He has already been honored several times for his efforts in combating climate change, for example in 2016 with the Order of the British Empire for “extraordinary services to climate change research”. He has also been a member of the American Academy of Arts and Sciences since 2015 and, along with his wife Hannelore, received the Carnegie Medal for Philanthropy in 2017. He is also a signatory of the Net Zero Asset Managers Initiative, which aims to reduce emissions from managed investment portfolios to zero by 2050 at the latest.
C. Kusche / editorial team finanzen.net