Jeremy Grantham Predicting Stock Market Crash in 2021! Debunking Myths | News or Noise?

Is This Headline News Or Noise?

How many times the last few years have you turned on a financial news network and seen the following headline?  “Legendary investor says” or “Billionaire hedge fund manager predicts” followed most of the time, by some very well-articulated thesis of doom or collapse? Just this past week we were inundated with the views of “legendary investor” Jeremy Grantham, founding partner at $60 billion AUM Grantham, Mayo, and Otterloo, or GMO for short.

The story told by TV newscasters is that Mr. Grantham rightly predicted both the internet bubble crash and the 2008 real estate meltdown, and now he is warning of a “magnificent bubble” even crazier than 1929.  I have great admiration for his firm and what he created, but his calls lack accuracy and infer false precision. Let’s review the latest history of his recent “big calls” and “breaking news” interviews.

  1. Mr. Grantham first started parroting his latest bubble thesis on October 27th….2010! That’s over 11 years ago.  It was titled “The Night of the Living Fed”.  Since he made that call, the S&P500 is up just over?  315% or a little over 13.75% per year over 11 years.
  2. Every year, due to his ongoing “legendary status”, Mr. Grantham releases his 7-year annual asset class return forecasts which are oohed and aahed over by financial journalists. He forecasts them so precisely, that he uses decimals.  However, none of these journalists ever seem to follow up on how horribly inaccurate his false precision has been over these 7-year periods. Case in point, in 2011 GMO projected that the real return of USA stocks would be essentially zero over the inflation rate over the next 7 years. What was the actual result 7 years later?  U.S. Large stocks returned 12.2% per year in real terms. Just a bit outside!

The 3 lessons from this story are 1 -don’t confuse false precision for accuracy, 2 – forecasting markets is hard, and 3 – “legendary” or “billionaire” status does not make an outside opinion worth more than you and your advisors independent, tailored financial plan.

News or Noise: NOISE!

Source Articles:

https://www.cnbc.com/2010/10/27/heres-that-report-from-jeremy-grantham-that-everyone-is-talking-about-today.html

https://finance.yahoo.com/news/legendary-investor-jeremy-grantham-says-203300474.html

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