Who is the big “bear” that works on Wall-Street, lives in Boston, and has a British accent?
10 May 2017
Investopedia1 defines “bullish” investors as someone who thinks the market or individual security will rise in the future. They feel it is a good time to buy and believe they can sell later at a higher price.
Jeremy Grantham is not “bullish”. The British born investor and founder of the Boston based asset management firm GMO LLC (Grantham, Mayo, Van Otterloo & Co.), has famously predicted the last two stock market “bubbles” including the tech bubble of 2000-2002 and the 2007-2008 credit crisis, which caused the great recession. A vivacious reader of financial history, Grantham is on record in a Fortune magazine article as saying:
“If you have been to the history books as much as we have and looked at every bubble and every bust. We are up to 34 completed bubbles. Every single one of them has broken all the way back to the trend that existed prior to the bubble forming.”
Grantham, who is credited with starting one of the world’s first index funds in the 1970’s, has an investment philosophy described by a commonly used financial phrase “reversion to the mean.” Grantham’s assumption is that a stock’s price, or the overall stock market, tends to return to the average price, or average return, over time. Being that the S&P 500 bull market in stocks turned 8 years old on March 6, 2017, Grantham might be on to something. The S&P 500 is up 295%, since its lowest level in 2009. Using quick math, the S&P 500 has averaged 36.87% each year since March of 2009, the historical average annual return of the S&P 500 since 1879 is 9.8% (based on data collected by Professor Robert Schiller). If the S&P 500 returns have any “reversion to the mean” in the future, “bullish” stock investors will have to “bear” with “bubble” returns.