The Man Who Called the Crash Now Likes Stocks

Some call legendary money manager Jeremy Grantham a "superbear."

Back in 1998, when stocks were soaring, Grantham made a prediction: Stocks will lose 1.1% a year over the next 10 years. Investors, expecting 20%+ returns a year, took their money out of his fund. He wasn't promising enough compared to his peers.

In hindsight, Grantham was exactly right. (It took 10 years and three days to equal his prediction.) 

Whenever Grantham writes something or grants an interview, I pay attention. He's one of Wall Street's few independent thinkers. I think guys like Steve Leuthold, Bill Gross, and Grantham are always worth reading. I may not always agree. But I value their opinions because I believe they're not sugarcoating anything.

(Once I was in New York with Bill Gross, and I thanked him for writing his Investment Outlook letter. I asked him whether being so outspoken angered his readers. He answered jokingly, "Half the people that read it think I'm not telling the truth, and the other half disagree with me... So I'm in the clear.")

Grantham has been quite vocal lately, in the Wall Street Journal, Barron's,The Economist, and most tellingly in his quarterly letter to shareholders.

In his letter, Grantham explains he's optimistic about stocks: "For an unparalleled 20 years, global equities, especially U.S. equities, have been overpriced. Now, finally, they are cheap and likely to get cheaper. Likely, I believe, to set up a once-in-a-lifetime investing opportunity (or maybe twice in a long career)."

Ever humble, Grantham says he suffers from the Value Investor's Curse: "I said as far back as 1999, while suffering from selling too soon, that my next big mistake would be buying too soon."

Grantham thinks the economy still has a ways to fall. In a Wall Street Journalinterview, he said, "We are in the teeth of the biggest financial crisis since the Depression and the early days of the broadest economic slowdown since 1982."

Now, "the crowd" is scared. And Grantham is nearly alone (except for Warren Buffett) in buying stocks.But Grantham is quite OK with being a bit early buying stocks. He's a long-term investor. Every quarter, Grantham publishes his seven-year forecast for the investment returns on all major asset classes. In this quarter's forecast, Grantham expects high-quality U.S. stocks and stocks in emerging markets to return more than 10% a year over the next seven years, under a good manager.

While everyone was bullish a decade ago, independent thinker Jeremy Grantham was practically the lone superbear – to the detriment of his firm. But he was right.