Was Jeremy Grantham Right or Wrong?
Grantham built a career calling bubbles. In a recent appearance on Diary of a CEO, he cautioned about Amazon’s 92% drop during the dotCom bust.
So here is the test. Pick a moment to buy Amazon, hold it, and never sell. Imagine you bought shares right at the tippy top of the DotCom Bubble (set the slider to December 1999).
Then watch what the prudent man’s money did over the same stretch. Move the entry point. The answer changes.
Verdict: caution had a price
You put $1,000 into Amazon at the dot-com peak (Dec 1999) and never touched it again. Today it is $47,427. That is 47.4× your money, +15.7%/yr. It fell more than ninety percent before it ever made you a dime.
Grantham called that mania a bubble, and at the index level he was right (most of that era’s darlings are landfill). His own fund, the GMO Global Asset Allocation, ran the same window on valuation discipline and capital protection. It returned 5.73×, +6.8%/yr. Prudent. Profitable. And 8.3 times smaller than just holding the winner.
Over the same stretch the S&P 500 returned 8.20× and gold 13.9×.
The index beat the value man, and the survivor beat them both. Being early about a bubble can save your existing clients from losing money, but as I argue in the coming edition of The Sovereign Capitalist Letter – the laws of Monetary Physics changed, and trying to call bubbles in an exponential age is no path to wealth.
The TSC launches the first week of July, get on the waiting list here.
