According to a Marketwatch article today, “Man credited with calling the 2008 crisis says the next 20 years in the stock market will ‘break a lot of hearts’.” Whew. That’s a lot to unpack.
Let’s start with a 20-year call being virtually worthless. In the next 20 years, I too predict the stock market will have rough periods. I also predict growth, a big year, a terrible year, a sidewise year, and a general overall trend up fueled at some points by growth, and some points by inflation. I mean, seriously, pretty much everything will happen at least once during the next 20 years.
Was The Prediction Really That Great?
As I pointed out in an earlier article, there is a staggering amount of back-patting, and, “See I was right!” when it comes to financial reporting, and a stunning lack of, “Here is where I was wrong.” So, when a headline like the one above pops up, I start getting curious. Let’s take a look.
Who Is Jeremy Grantham?
“The man credited with calling the 2008 crisis.”
That’s some good credentials. Of course, it would help if we knew who exactly credits him for calling the 2008 crisis, and under what criteria. This Wall Street Journal article, for example notes that he was sounding the alarm for three years, concluding, generously, that he was early but eventually right. In investing, that’s the same thing as being wrong.
Of course, another way of saying it was that he was wrong for three years, and cost you all the increases of 2005 to 2008 if you listened to him. I’m not sure if that qualifies as “calling” the 2008 crisis, as opposed to it eventually happening.
In many ways it would be like me saying, “A major correction is coming!”
I’m not wrong.
There is always another correction coming. That’s how the business cycle works. Do I get credit for calling it, if it just so happens to occur between now and 2022?
There is also an article from mid-2007 saying that Grantham recommends the “quality” of Citigroup and Cisco. This will prove to be tragic advice. This is what the next 12 months looks like for that Citigroup pick. It would bottom out near $10 per share by 2009. (Cisco won’t fare much better.)
One of the weirdest things about these types of articles is the way they make it seem like Nostradamus walked out the day before the 2008 stock market crash and announced it is time to sell, before returning to a cave where they awaited the next time the future was revealed.
Of course, that isn’t how the world works. I doubt Grantham has gone silent since 2008. Isn’t there something else he said in the last DECADE that was accurate and valuable information?
In 2009, he recommended getting back in, right before the market low. Now THAT truly is impressive. Grantham was hardly alone in predicting a 2008 bubble pop, and as noted, was pretty early with the call, so early, that it’s tough to give him credit for being right at all. However, getting the BOTTOM right in 2009, when few others were calling a bottom is actually VERY impressive. I’m starting to feel a lot better about Grantham than based on that 2008 call.
In 2010 he said this. Sure, it has nothing to do with investing, but it’s about as clear eyed as a person can be about the world around us.
“Conspiracy theorists claim to believe that global warming is a carefully constructed hoax driven by scientists desperate for … what? Being needled by nonscientific newspaper reports, by blogs and by right-wing politicians and think tanks? I have a much simpler but plausible ‘conspiracy theory’: the fossil energy companies, driven by the need to protect hundreds of billions of dollars of profits, encourage obfuscation of the inconvenient scientific results. I, for one, admire them for their P.R. skills, while wondering, as always: “Have they no grandchildren?”We’re Gonna Be Sorry – New York Times
In 2012, speaking about the markets in 2013, he said this:
His advice is to avoid U.S. stocks, but if you must buy them, as he does for some of his funds, he recommends nothing but the blue-est of blue chips.Forbes
Whoops. I think we can give Grantham’s 2013 call to avoid U.S. stocks a failing grade.
I’m not going to sit here all day and check out Grantham every year through the decade, but I’m starting to see a pattern. Grantham calls bad things, often. Let’s move up a bit and check some more recent things.
Here is Grantham at the end of 2016 claiming the market is NOT a bubble, when there were (and still are) TONS of people out there predicting a bubble pop, a crash, or what have you. Grantham was dead-on accurate with this article in almost every way. It doesn’t make as good of headline as “Man who called 2008 crash says…” but, it’s far more recent, AND far more individual. As I noted, people calling for a crash in 2008 were not hard to find. Someone standing up and saying that the hysteria of calling 2016 or 2017 a market bubble, was actually just as accurate, and twice as rare.
Before you start patting Grantham on the back, however, you’ll probably want to read this about how Grantham’s fund has actually been hurting over the past two years. Why? Because he is once again “calling” U.S. stocks taking a beating and pulling all of his money out. It’s hard to say he is “wrong” since the markets haven’t exactly been on fire, but just like last time, listening to Grantham, who may EVENTUALLY end up being right would have cost you money during the last three or four years.
If the market crashes later this year, or the next, they’ll be back with this article from today where he sounds a bearish tune, giving him credit for “calling” the 2019 crash, when in reality, he just said something that will inevitably be true… some day.
What everyone will leave out, is how much money you would have lost listening to him along the way.