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Jeremy Grantham Discusses Sustainable Investment (Podcast) · Masters in Business

0:02
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg
0:06
Speaker 1: Radio this week on the podcast What Can I Say?
0:10
Speaker 1: Jeremy Grantham, he is a legend, Uh, the founder of GMO.
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Speaker 1: He is literally the G in GMO. He is the
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Speaker 1: chairman of the firm as well as sitting on the
0:21
Speaker 1: asset Allocation Committee. Um. He has had a fascinating career.
0:26
Speaker 1: I could have spoken him for hours, um, but we
0:30
Speaker 1: only had him for a finite amount of time before
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Speaker 1: his next actually dinner. We're recording this late on a
0:37
Speaker 1: Thursday night. Uh, it's dark out, the Bloomberg studios are empty.
0:42
Speaker 1: It's kind of interesting evening recording. But what can I
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Speaker 1: tell you? His his track record is astonishing. He's created
0:51
Speaker 1: a ton of wealth over the years. His philosophy of
0:55
Speaker 1: investing is pretty straightforward. Be a value investor, be a
1:00
Speaker 1: air of the data. Understand when things are getting out
1:03
Speaker 1: of hands. Um, you may not get the timing perfect,
1:07
Speaker 1: but when things become excessively pricey, when the animal spirits
1:11
Speaker 1: run amuck, when the bubbles begin to form, you know
1:16
Speaker 1: how that ends, and it's never well. The history he's
1:21
Speaker 1: put together of warning and positioning himself correctly before the
1:27
Speaker 1: nineteen late eighties, Japanese bubble popped, UH, the dot com
1:32
Speaker 1: bubble in the late nineties, the Great Financial Crisis. His
1:36
Speaker 1: timing has been pretty extraordinary. He's been pretty bearish on
1:41
Speaker 1: US stocks um over the past few years and has
1:46
Speaker 1: become much more enthusiastic for emerging market value stocks. He
1:51
Speaker 1: has warned if you jump into e M, you're gonna
1:54
Speaker 1: feel foolish and uncomfortable for a period of time and
1:59
Speaker 1: not your first buying opportunity, then it becomes even more
2:02
Speaker 1: painful that your second buying opportunity. But if you have
2:05
Speaker 1: a ten or a twenty year window, UM, that's where
2:09
Speaker 1: you want to be. We discuss philanthropy. He's basically donated
2:14
Speaker 1: all of his money to his charitable foundation, and of course,
2:18
Speaker 1: since it was Jeremy Grantham, we talked a lot about
2:21
Speaker 1: climate change. It's his favorite philanthropic issue, and he's basically
2:26
Speaker 1: warns that if we don't do something in soon, uh,
2:29
Speaker 1: there ain't gonna be a whole lot of people around
2:31
Speaker 1: in fifty years. That we're standing on the precipice of
2:36
Speaker 1: a catastrophic um set of of changes. And he says
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Speaker 1: he approaches climate change the same way GMO has approached investing.
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Speaker 1: He looks at the data, he looks at the overall
2:49
Speaker 1: trend and makes what he believes are intelligent, reasonable UH
2:55
Speaker 1: decisions based on that data, and those decisions have led
2:58
Speaker 1: him to be extremely cautious about what's coming our way
3:03
Speaker 1: courtesy of UM rising carbon in the atmosphere caused primarily
3:08
Speaker 1: by burning wood coal, UH and oil and gasoline, and
3:14
Speaker 1: we need to UH figure out if we want to
3:16
Speaker 1: be here a century from now or not. UH. He
3:19
Speaker 1: talked about the propaganda industry that's been pushing back against this,
3:24
Speaker 1: how the oil industry and the Koch Brothers have funded
3:26
Speaker 1: UH disinformation campaign, as he said, brilliantly, quite successfully, and
3:32
Speaker 1: lots of people no longer believe in science because it's
3:36
Speaker 1: profitable for these companies to have the public not believe
3:39
Speaker 1: in science. I could talk about our conversation for hours
3:42
Speaker 1: and hours, but rather than listen to me, continue to
3:45
Speaker 1: babble with no further ado. My conversation with Jeremy Grantham.
3:53
Speaker 1: I have an extra special guest this week. His name
3:57
Speaker 1: is Jeremy Grantham and he is one of the co
4:00
Speaker 1: founders of GMO, where he is also chief Investment strategist,
4:04
Speaker 1: a member of the Asset Allocation Team, and a member
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Speaker 1: of GMO's board of directors. Previously, he was co founder
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Speaker 1: of Battery March Financial Management. He began his career as
4:16
Speaker 1: an economist with Royal Dutch Shell. He did his undergraduate
4:20
Speaker 1: work at the University of Sheffield, got his MBA from
4:23
Speaker 1: Harvard Business School. Jeremy Grantham, Welcome to Bloomberg. Hello, pleasure
4:29
Speaker 1: to be here. So let's let's start with the Battery
4:33
Speaker 1: March Financial Management that was nixt nine. GMO was seven.
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Speaker 1: I'm curious the seventies were not especially fun period to
4:44
Speaker 1: be an equity investor. How much of your investing philosophy
4:48
Speaker 1: was shaped by your experience in the nineteen seventies. The
4:53
Speaker 1: seventies were hugely kind to us country to what you're suggesting.
5:00
Speaker 1: We had a battle plan to invest all our money
5:05
Speaker 1: in small cap value before institutionally they had invented small
5:11
Speaker 1: or value. Everybody invested with Morgan Guarantee Trust, and they
5:16
Speaker 1: bought the nifty fifty, the Great Avon's and ibm s,
5:21
Speaker 1: and we bought Great Lakes Dark and Dredge and which
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Speaker 1: and no one had heard of. And they went down
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Speaker 1: with the rest of the market, but no more badly
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Speaker 1: than the Avon's. They all everybody went down in the
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Speaker 1: great and then where they rallied for a year, we
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Speaker 1: just rallied and rallied, and the small cap inherited the earth.
5:47
Speaker 1: And between seventy four and eight two a small cap
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Speaker 1: outperformed by well over a percentage points. So did that
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Speaker 1: experience affect your philosophy? Did that make you more of
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Speaker 1: a small care up in value factor investor? It made
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Speaker 1: me much more a devotee of trying to find which
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Speaker 1: group might do better in a D two. We basically
6:14
Speaker 1: abandoned small cap and went into large cap because they've
6:16
Speaker 1: done so well. So we gave up our ten years
6:20
Speaker 1: of background together Dick Mayo and me and being the
6:25
Speaker 1: m M GMO being the m M GMO and and
6:29
Speaker 1: changed because when something has a run and beats the
6:33
Speaker 1: market by a hundred points, you better be ready to
6:36
Speaker 1: abandon chip, and so we did so before we get
6:39
Speaker 1: up to the I want to stay. In the nineteen seventies,
6:42
Speaker 1: when you were at Battery March, you worked with Dean
6:46
Speaker 1: LeBaron and the two you kind of put together an
6:50
Speaker 1: idea that you first floated at a Harvard Business School
6:53
Speaker 1: seminar um, and the concept was maybe people should just
6:57
Speaker 1: buy a Brouin index of stocks and stead of trying
7:00
Speaker 1: to pick individual names'll just tell us how that played out.
7:04
Speaker 1: Dean had a a friend, Lee Bowden Hammer, and this
7:09
Speaker 1: was a summer course for pension fund officers at HBS,
7:14
Speaker 1: and they had written a special case where these pension
7:19
Speaker 1: fund guys were going to choose between the establishment Morgan
7:23
Speaker 1: Guarantee Trust they JP Morgan basically and and the other
7:28
Speaker 1: banks in New York owned the pension fund business back then.
7:33
Speaker 1: And the second player was tro Price, which was relatively
7:37
Speaker 1: new and represented growth, which was also relatively new, and
7:44
Speaker 1: and the third one was a little unheard of new company.
7:48
Speaker 1: They actually invented a new name for us. And they
7:52
Speaker 1: had to decide between these three. And at the end
7:55
Speaker 1: of the class, when they had gone through their proceedings,
7:59
Speaker 1: as it's typically the case, they the boss asked the
8:05
Speaker 1: visitors sitting on the back bench, had they got any comments.
8:09
Speaker 1: You're not allowed to talk during the class, but you
8:12
Speaker 1: usually get asked. And I can't remember what Dean said,
8:17
Speaker 1: but what I said was when I looked at the case,
8:20
Speaker 1: and I looked at the data for the three players
8:22
Speaker 1: and the SMP. I was surprised that no one in
8:25
Speaker 1: the room had suggested giving their money to the gentleman
8:28
Speaker 1: from standard and pause. That was it went over like
8:31
Speaker 1: a lead balloon. No one twitched and on the car
8:35
Speaker 1: back in the drive, I had said to Dean, why
8:37
Speaker 1: don't we take this seriously? Honestly, think about it. GM
8:43
Speaker 1: is said to have a hundred different managers. What chance
8:46
Speaker 1: did they have of actually beating the SMP. They're drowning
8:49
Speaker 1: in turnover and management fees. So if you look at it,
8:54
Speaker 1: you know one thing with absolute certainty. The players are
8:58
Speaker 1: going to pay percent or two percent a year to
9:01
Speaker 1: play the game, and the observers sitting at the bar,
9:05
Speaker 1: if you will, watching the poker game, are going to
9:08
Speaker 1: have a market return. Therefore, by definition, the guys at
9:13
Speaker 1: the bar are going to be the average of the
9:15
Speaker 1: poker players, because there will be a zero sum poker players.
9:19
Speaker 1: Some of them may do brilliantly well by inflicting their
9:22
Speaker 1: transaction costs and their management fees on one of the
9:26
Speaker 1: less good poker players. And but at the end of
9:29
Speaker 1: the game, all the players will sum to minus one
9:32
Speaker 1: and a half, and all the observers will sum to
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Speaker 1: zero and and you would win. And why don't we
9:40
Speaker 1: suggest to the big players instead of instead of having
9:43
Speaker 1: thirty investment managers or a hundred, that they put a
9:46
Speaker 1: big chunk of their money into the market. So the
9:50
Speaker 1: entire logic was zero sum game, which was a sufficient
9:54
Speaker 1: reason to do it then and is a sufficient reason
9:56
Speaker 1: to do it today. And no one was interested. We
10:01
Speaker 1: offered it. Dean was a brilliant propagandist. No one was interested.
10:05
Speaker 1: No one was interested, and he got written up the
10:09
Speaker 1: story in the New York Times magazine, supplement and so
10:13
Speaker 1: on and so forth, and it got a lot of exposure,
10:16
Speaker 1: and at the end of a year, Pension and Investment
10:19
Speaker 1: the Trade Rag jokingly gave us an award for the
10:22
Speaker 1: most talked about product with no business? How did you
10:25
Speaker 1: first get interested in the challenges of climate change? When
10:30
Speaker 1: when I'm giving my stump speech to financial people, I
10:35
Speaker 1: always hope that someone will ask me this question. And
10:38
Speaker 1: what I say is, you've seen the data that I've
10:41
Speaker 1: just gone through, and you're asking me this damn stupid question.
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Speaker 1: Why why would I be excited if you've seen the data?
10:49
Speaker 1: The real question is, what the hell are you doing,
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Speaker 1: not being excited. How is it possible that the great
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Speaker 1: majority of you sitting in the audience have done nothing
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Speaker 1: and no very little about this threat, which is the
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Speaker 1: most severe one you will have to deal with for
11:03
Speaker 1: the rest of your life. There was a book out
11:05
Speaker 1: not too long ago called Windfall, and one of the
11:08
Speaker 1: conclusions of the book was the dry areas are gonna
11:13
Speaker 1: get drier, the wet areas going to get what wetter.
11:16
Speaker 1: Where it's hot, it's going to get hotter. Where it's cold,
11:18
Speaker 1: it's going to get colder. And the way this falls
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Speaker 1: out across the planet is disproportionately on the poorest people
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Speaker 1: in the world. Does does that still ring true? Is
11:30
Speaker 1: that what we're looking at going forward? Yeah? I think
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Speaker 1: in general the consequences of climate damage here I felt
11:37
Speaker 1: in the most sensitive areas, which are occupied mainly by
11:42
Speaker 1: the poor, they live in the least desirable parts of
11:45
Speaker 1: the world, the semi desert zones of Africa and the
11:49
Speaker 1: Far East being classic examples. However, the cold, the cold
11:53
Speaker 1: areas are not getting colder. Actually, the further north and
11:57
Speaker 1: south you go towards the poles, the faster it's warming up,
12:01
Speaker 1: and the closer you get to the equator, the more
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Speaker 1: slowly it's warming up, which interestingly has has some profound
12:08
Speaker 1: effects because the wind draws its power from the temperature
12:13
Speaker 1: differential between the pole and the equator, and if you
12:16
Speaker 1: narrow that by having the polls get warmer faster, you
12:19
Speaker 1: slow down the winds. So now hurricanes are moving ten
12:22
Speaker 1: percent slower, So you're more likely to have a hurricane
12:26
Speaker 1: amble its way across your territory and rain a whole
12:28
Speaker 1: lot more rain, which is what happened in spades in Houston,
12:31
Speaker 1: where it rained thirty inches in three days. You have
12:35
Speaker 1: raised the question as to whether or not energy will
12:38
Speaker 1: give us a serious and sustained set of problems over
12:42
Speaker 1: the next fifty years. What what you're thinking about energy?
12:46
Speaker 1: Looks like parts of the world are transitioning to renewables
12:49
Speaker 1: somewhat slowly, but it's moving forward. Tell it. Tell us
12:53
Speaker 1: about energy? Well, the technology and energy has been unexpectedly great.
12:59
Speaker 1: It's moving at great speed, has a thousands of new
13:03
Speaker 1: enterprises trying to push it along, and in general it's
13:08
Speaker 1: been a very pleasant surprise, meaning the costs have come down,
13:13
Speaker 1: the efficiency costs of wind have come down more than
13:16
Speaker 1: anyone dreamt possible years ago, costs of solar have come
13:21
Speaker 1: down the same um. Solar is now equal or cheaper
13:25
Speaker 1: than coal. Is that a fair statement? A modern utility
13:30
Speaker 1: plant for solar or wind in any one of half
13:34
Speaker 1: a dozen better states is cheaper to construct and run
13:39
Speaker 1: than it is merely to run an existing coal plant.
13:42
Speaker 1: It's actually fully costed cheaper than the marginal cost of
13:46
Speaker 1: the best nuclear and the best coal plants. Do you
13:50
Speaker 1: see much of a future from nuclear? My my motto
13:54
Speaker 1: is never underestimate science and also, unfortunately, never underestimate Homer
14:00
Speaker 1: sapiens ability to screw it up the But in terms
14:05
Speaker 1: of nuclear there are endless attempts to come up with
14:09
Speaker 1: what you might call third generation fusion, trying to bypass
14:14
Speaker 1: some of the problems that have slowed them down for
14:16
Speaker 1: twenty thirty years based on the new technologies. They have
14:19
Speaker 1: so much invested in in the old approach to fusion
14:23
Speaker 1: that they're kind of now they're thirty billion in the hole.
14:27
Speaker 1: They feel they have to keep going, and some of
14:29
Speaker 1: these new people working on a shoestring may may get lucky,
14:33
Speaker 1: may come up with a form of fusion. There was
14:36
Speaker 1: there was a buzz A couple of years ago about
14:38
Speaker 1: thorium reactors that kind of came in, and and even
14:41
Speaker 1: on fishing thorium or new engineering tricks small scale, you
14:47
Speaker 1: can't rule them out. If you come back in thirty years,
14:51
Speaker 1: I think there's maybe a fifty fifty shot that one
14:53
Speaker 1: or the other will have come through with something that
14:56
Speaker 1: is helpful. Um of course by their and energy storage,
15:01
Speaker 1: which is the key to wind and solar, and may
15:04
Speaker 1: have become so cheap that it's that it's not really
15:06
Speaker 1: necessary even even if it's technically feasible um solar and wind,
15:11
Speaker 1: which are continuing to decline by the way out into
15:14
Speaker 1: the distant future as far as one can see. I
15:16
Speaker 1: just give you one example of that, and that is
15:19
Speaker 1: that the winds over the ocean is faster than the
15:22
Speaker 1: winds on land, and the bigger the wind tower, much
15:28
Speaker 1: more efficient it becomes. It's the swept area, so that
15:33
Speaker 1: a twenty fourth blade doesn't give you twice the energy
15:36
Speaker 1: of a ten foot blade, it gives you four times.
15:39
Speaker 1: And as you go up the wind speed increases, and
15:42
Speaker 1: the power of a windmill is a cube of the
15:44
Speaker 1: wind speed. That's why hurricanes of a hundred and forty
15:47
Speaker 1: miles are so much more deadly than a hundred and twenty.
15:50
Speaker 1: It sounds like it should be seventeen percent, but it's
15:52
Speaker 1: fifty or sixty percent. And so if you can build
15:55
Speaker 1: a truly giant windmill, and the ones you drive past
15:58
Speaker 1: on a cycling trip in under two megawats, and the
16:01
Speaker 1: one you can order from ge if it's still around
16:04
Speaker 1: but delivery in two is twelve megawats, and that is
16:09
Speaker 1: almost as high as the Eiffel Tower, believe it or not.
16:12
Speaker 1: And they are massively efficient, and you can only build
16:16
Speaker 1: them in in in the oceans where the wind is
16:18
Speaker 1: more constant. And if you could find the technology to
16:21
Speaker 1: build it in the North Atlantic and have cables that
16:24
Speaker 1: could carry it back to civilization. Uh, the wind is
16:28
Speaker 1: blowing e t plus percent of the time in the
16:31
Speaker 1: winter when you really need it in the northern hemisphere.
16:34
Speaker 1: So there is a lot of potential up our sleeve
16:37
Speaker 1: for the next few decades. In the end, I think
16:40
Speaker 1: we will have a plentiful supply of green energy. We
16:43
Speaker 1: will not, as a civilization, be brought to our knees
16:46
Speaker 1: for a lack of green energy. The problem will be
16:50
Speaker 1: how long has it taken us to get there? So
16:53
Speaker 1: we will get plenty of energy in fifty years, will
16:55
Speaker 1: be fully decombonized. I should think in a hundred years,
16:58
Speaker 1: maybe sooner, but the damage that will have been done
17:02
Speaker 1: by then. As the carbon dioxide count rises. We have
17:06
Speaker 1: seen and been amazed, including the scientists, by the way,
17:09
Speaker 1: at the rate at which the damage in fires and
17:12
Speaker 1: floods and the hurricanes, and the speed they build up
17:15
Speaker 1: their power drought some floods for agriculture, We've all been
17:19
Speaker 1: horrified by how quickly that has escalated. And if you
17:24
Speaker 1: extrapolate what is going on today, we have no hope
17:27
Speaker 1: of controlling this for one and a half degrees, that
17:29
Speaker 1: is merely an intellectual exercise. We have no real hope.
17:33
Speaker 1: But two degrees, we're going to have to fight and
17:35
Speaker 1: scratch and do much better than we are doing today
17:38
Speaker 1: to keep it below three degrees. And at three degrees,
17:41
Speaker 1: all manner of bad things are already happening, and some
17:45
Speaker 1: of them may actually get out of control, become self
17:49
Speaker 1: reinforcing vicious cycles. There's no guarantee that that will not
17:54
Speaker 1: happen anytime in the next few decades. So so let's
17:58
Speaker 1: talk for a moment about agnetology or culturally constructed ignorance. Um,
18:05
Speaker 1: you have a line that I'm intrigued by. You wrote,
18:09
Speaker 1: the misinformation machine is brilliant. Please explain. The Koch Brothers
18:15
Speaker 1: and and the excellence of the world have been basically
18:18
Speaker 1: funding a disinformation for thirty years, maybe longer, and they
18:26
Speaker 1: have help set up institutes, UM. Right wing institutes who
18:33
Speaker 1: basically defend the idea that climate change is a hoax
18:38
Speaker 1: are in that sense anti science. And they've done it well.
18:42
Speaker 1: They've been persistent, they've funded it, if you will, generously,
18:47
Speaker 1: and they have achieved remarkable results. In comparison, science has
18:52
Speaker 1: been diffident and cautious, careful not to overstate anything, and
18:57
Speaker 1: and in that care they have garanteed they understate everything.
19:02
Speaker 1: And as I like to tease them, it may be
19:04
Speaker 1: dangerous to overstate most things in science. But one thing
19:07
Speaker 1: is absolutely certain, and that is it's dangerous to understate
19:12
Speaker 1: climate change. If by understating it, by being too cash, cautious,
19:16
Speaker 1: too careful, you you influence a politician to underreact, you
19:22
Speaker 1: influence the general public to underreact, you may be making
19:27
Speaker 1: a huge, painful, dangerous mistake. So the tobacco industry managed
19:32
Speaker 1: to keep people confused about the impact of tobacco for
19:37
Speaker 1: decades and decades before they ultimately how to make a
19:41
Speaker 1: multibillion dollar, multi decade settlement. How long will it take
19:45
Speaker 1: before the carbon industry, UH, similarly stops pulling the wool
19:50
Speaker 1: over so many people's eyes. I think we're changing very
19:53
Speaker 1: rapidly this last couple of weeks. That's been a confluence
19:57
Speaker 1: of reports and coupled with the terrible forest fires burning
20:03
Speaker 1: all the time in California. Regrettably, those natural horrors are
20:09
Speaker 1: seemed seemed to be necessary to move public opinion. But
20:14
Speaker 1: the confluence of that tragedy with all these major reports
20:19
Speaker 1: one from NASA, a government agency, and and major one
20:24
Speaker 1: from the U, n H I, p c C talking
20:29
Speaker 1: about the chances and costs of holding it at one
20:32
Speaker 1: and a half degree centigrade, and and and also three
20:35
Speaker 1: or four other articles and peer reviewed seriously important journals,
20:40
Speaker 1: what I would call the top three science journals. That
20:43
Speaker 1: confluence has created an enormous amount of attention in the press,
20:47
Speaker 1: which is so rare, and it's played, and it's played
20:49
Speaker 1: in my opinion, and I think Trump has agitated the
20:53
Speaker 1: science world into standing up and actually stating now for
20:57
Speaker 1: the first time in terms that rep present that honest belief.
21:01
Speaker 1: So I think the worms have turned fairly big time.
21:05
Speaker 1: I I used to tease them. I hadn't actually a
21:08
Speaker 1: commentary in Nature, perhaps the number one journal, and it
21:12
Speaker 1: was called be brave, be persuays if be arrested if necessary,
21:17
Speaker 1: And there was haranguing these guys for not stepping up. Well,
21:20
Speaker 1: now Trump has done what many people couldn't, and he
21:24
Speaker 1: stepped up. They have stepped up. I should say, let's
21:27
Speaker 1: talk a little bit about philanthropy. I read a fascinating statistic.
21:32
Speaker 1: Only two to four of all charitable donations made each
21:37
Speaker 1: year go towards environmental causes? Is that possibly right? Sadly,
21:43
Speaker 1: it's absolutely right. I mean, it's it's tragic. It reflects
21:47
Speaker 1: I think the motivation for a lot of charitable giving,
21:52
Speaker 1: which to be uncharitable, is to move in the right
21:55
Speaker 1: circles and be recognized for what you do. And you
21:58
Speaker 1: move with illuminati, and you go to dances and balls
22:04
Speaker 1: and photographed and put in in the tatler, and and
22:09
Speaker 1: so it goes on. And in comparison, lowly defense of
22:14
Speaker 1: the environment is not very good from promoting your your
22:21
Speaker 1: your life in in in smart circles it's it's a
22:24
Speaker 1: kind of country cousin and and it gets two percent,
22:28
Speaker 1: even though without solving the climate problem. Your college is
22:34
Speaker 1: your museums, everything. In the end, it's not going to
22:37
Speaker 1: be worth much if we can't maintain a fairly stable
22:42
Speaker 1: global civilization, which is seriously at risk. And almost any
22:47
Speaker 1: serious scientists would come from that. So let's talk a
22:50
Speaker 1: little bit about the Grantham Foundation for the Protection of
22:53
Speaker 1: the Environment. What what sort of activities does that fund?
22:58
Speaker 1: First of all, let me say it hasn't of my
23:02
Speaker 1: accumulated ill gotten gains from the financial world, and that
23:08
Speaker 1: is a pretty effective statement of how serious I think
23:11
Speaker 1: it is. I don't even see it really as philanthropy.
23:13
Speaker 1: I see it as defensive investment, trying to look after
23:18
Speaker 1: my children, grandchildren and their progeny indefinitely. And I am
23:24
Speaker 1: always amazed that more people don't see it that way. UM,
23:29
Speaker 1: I'm not a scientist and you don't. But you don't
23:32
Speaker 1: have to be a scientist to understand the science that
23:36
Speaker 1: is coming down the road so fast. So let's talk
23:41
Speaker 1: a little bit about, um, your long term goals. How
23:45
Speaker 1: do you specifically identify different recipients that you fund? You
23:49
Speaker 1: you fund a lot of existing groups as well as
23:52
Speaker 1: some of your own new projects. To start with the
23:56
Speaker 1: exciting stuff of our corpus UM is invested in green
24:02
Speaker 1: investing by us directly in in in venture capital. So
24:08
Speaker 1: and I have three very industrious sharp helpers and we
24:12
Speaker 1: spend I spend as much time as I can, and
24:16
Speaker 1: they spend all their all their time really um chasing
24:20
Speaker 1: down great opportunities in this field. And one of the
24:24
Speaker 1: rules we have is they have to be capable of
24:28
Speaker 1: really making it a difference, changing the probabilities of surviving
24:32
Speaker 1: all all of these stressful points. And we spend a
24:36
Speaker 1: lot of time face to face with scientists and entrepreneurs
24:40
Speaker 1: scientists slash entrepreneurs, and it's amazing what they're up to.
24:45
Speaker 1: They have done um incredible things. I just give you
24:49
Speaker 1: a few examples. We our r n A is the
24:53
Speaker 1: kind of engineering part that sends messages to the d
24:56
Speaker 1: NA what to do. And the problem with it was
25:00
Speaker 1: so so expensive to isolate that a lot of work
25:04
Speaker 1: just couldn't be undertaken. It was a thousand dollars a
25:07
Speaker 1: Graham and we bumped into a group that with a
25:10
Speaker 1: completely different approach, can now make it. At thirty five
25:14
Speaker 1: cents a Graham with a target of ten cents next year.
25:18
Speaker 1: That's the kind of order of magnitude you need to
25:23
Speaker 1: be disruptive. And and having obtained the material, they can
25:27
Speaker 1: now design h endless things. But one of them they
25:32
Speaker 1: started with a very obvious one was to send the
25:34
Speaker 1: instructions to a very expensive beetle, the Colorado potato beetle
25:42
Speaker 1: um that can devastate whole fields in in kind of
25:46
Speaker 1: one sitting as it were, and the RNA says, are
25:51
Speaker 1: you a Colorado beetle? Yes, I am, Please proceed to
25:54
Speaker 1: this part of your DNA. Now we will turn off
25:57
Speaker 1: this particular switch. And what does is unique to that beetle.
26:03
Speaker 1: It will make it impossible to digest cellulosic fiber. So
26:08
Speaker 1: the beetle munches away on the potato and dies of
26:11
Speaker 1: starvation and drops harmlessly to the ground where it's not
26:14
Speaker 1: even poisonous and can be eaten up by the other
26:16
Speaker 1: local insects, and all of the literally poisonous insecticides that
26:22
Speaker 1: previously we're used can be dispensed with. I mean that
26:26
Speaker 1: that is the kind of thing that could really change
26:28
Speaker 1: the world. And another one is we we fund a
26:32
Speaker 1: lightweight vehicle. The trouble with the Tesla. I just received
26:36
Speaker 1: my Model three, and I'm thrilled by it, by the way,
26:39
Speaker 1: But it weighs three thousand pounds pounds and it's moving
26:47
Speaker 1: a hundred and fifty pounds of me down the road.
26:51
Speaker 1: And the vehicle we're funding via m I T work
26:55
Speaker 1: is under eight pounds. Is that like a composite material
27:00
Speaker 1: that's been it's carbon fiber protection around a three wheeler,
27:05
Speaker 1: and you could say it's a glorified comfortable motorbike with
27:09
Speaker 1: one or two passengers, in room for some groceries and
27:12
Speaker 1: keeps the rain off. But it's also the most streamlined
27:16
Speaker 1: vehicle on the road, moves like a rocket ship, entirely electric,
27:20
Speaker 1: of course, and it has a range far beyond any
27:25
Speaker 1: reasonable needs. The the material, the composite, stronger than steel,
27:30
Speaker 1: but a fraction of the weight is that the goal.
27:33
Speaker 1: It's ten times more capable of absorbing injury and still
27:38
Speaker 1: bouncing back than steel, and of course very much lighter.
27:42
Speaker 1: Whether it's a tenth of as light, I should think
27:45
Speaker 1: probably something like that. And you mentioned the potato beetle.
27:49
Speaker 1: I have to ask about agriculture in general, because I
27:52
Speaker 1: know this is a topic that's been very worrisome for you. Um.
27:56
Speaker 1: I think most people are aware of the great die
27:59
Speaker 1: or of bees. Maybe it's a pesticide, We're not exactly
28:03
Speaker 1: sure what it is. How dangerous, How threatened is the
28:09
Speaker 1: food supply of Homo sapiens given all the changes that's
28:13
Speaker 1: going on. I actually think that the intestation of food
28:17
Speaker 1: problems with a rapidly growing population, particularly in Africa, is
28:21
Speaker 1: the most direct threat of climate change, because climate change
28:26
Speaker 1: makes the growing of food that much harder. A report
28:30
Speaker 1: from the Proceedings of the National Academy said that they expect,
28:34
Speaker 1: if nothing has changed in the current agricultural processes, that
28:39
Speaker 1: the grain productivity will drop by thirty by the middle
28:44
Speaker 1: of this century. Around the corner and and the u
28:48
Speaker 1: N will tell you we need a increment to keep
28:51
Speaker 1: feeding the cattle that the Chinese want to eat, et cetera.
28:56
Speaker 1: And the second big this problem that may be burning
29:01
Speaker 1: faster even than climate change is toxicity, and they have
29:06
Speaker 1: kind of flashed onto We're not looking for trouble. We
29:08
Speaker 1: want to keep life simple, and we can't because these
29:11
Speaker 1: problems are all interrelated. But let's start with the insects.
29:14
Speaker 1: Two years ago, a wonderful group of amateur insect lovers
29:18
Speaker 1: in Germany looked at sixty three forest preserves in Germany,
29:24
Speaker 1: so they're not around refineries, that in a forest protected forest,
29:28
Speaker 1: and they measured that from nine until now all flying
29:35
Speaker 1: insects have gone missing. I mean, this is absolutely catastrophic.
29:38
Speaker 1: People felt there must be something wrong, but it was
29:42
Speaker 1: done so meticulously, with Germanic thoroughness, one has to say,
29:47
Speaker 1: and there is no possibility of a major era. They
29:50
Speaker 1: put out the same net, exact same net in the
29:53
Speaker 1: same part of the forest on the same day of
29:55
Speaker 1: the year, and they'd go back and back and had
29:58
Speaker 1: thousands of measurement periods over that time period. And then,
30:03
Speaker 1: to make matters worse, in the last six weeks, a
30:07
Speaker 1: similar study in the proceedings National Academy of Science, once
30:12
Speaker 1: again which is generally considered the second most important science journal,
30:16
Speaker 1: came out with an insects study in a protected semi
30:20
Speaker 1: tropical forest in Puerto Rico which was protected by the
30:24
Speaker 1: King of Spain long ago. And again to everyone's horror,
30:30
Speaker 1: se approximately of the flying insects were missing. The birds
30:34
Speaker 1: that fed on insects were down by the birds that
30:37
Speaker 1: fed on seeds weren't down at all, the frogs and
30:39
Speaker 1: lizards at the insects were down by And the impact
30:43
Speaker 1: on the soil, it's very hard to find out. But
30:47
Speaker 1: unless we're careful, a lot of the compost and leaves
30:52
Speaker 1: and and dong is going to be left there unprocessed,
30:56
Speaker 1: and pretty soon soil will not be able to do
30:59
Speaker 1: what it does us. And also, of course the effect
31:02
Speaker 1: on pollinators. You lose the pollinators, you lose the value
31:06
Speaker 1: of all your agriculture, a lot of the all the
31:09
Speaker 1: fruits need pollination, all flowers need pollination. And no one
31:15
Speaker 1: yet we've been able to find, can tell us the
31:18
Speaker 1: cascade effect of going from where we are minus a hundred.
31:22
Speaker 1: So how come no one knew this? And it turns
31:23
Speaker 1: out no one has been studying insects, so why not?
31:26
Speaker 1: And it turns out because you can't get grants because
31:29
Speaker 1: it's a boring damn topic in the past, and and
31:32
Speaker 1: no one was funding the research. The only research that
31:34
Speaker 1: we knew were on monarch butterflies because they're kind of
31:40
Speaker 1: trophy insects and bees because they are commercially important, and
31:45
Speaker 1: we knew that they were under terrible duress, and we
31:47
Speaker 1: assumed that was unique to monarchs and bees, and it isn't.
31:51
Speaker 1: It's you know, it's common to all flying insects. So
31:54
Speaker 1: the be die off that's been in the news for
31:55
Speaker 1: the past five or so years is not so much
31:58
Speaker 1: a bee die off as it is a winged insector
32:00
Speaker 1: the wind a flying insect die off. Yes, we know
32:03
Speaker 1: that chemicals that are commonly used can have terrible effects
32:08
Speaker 1: on fertility rates. Now we know by a study that's
32:11
Speaker 1: only two weeks old where some guys in East Anglia,
32:15
Speaker 1: responding to the Puerto Rica study, grabbed a beetle and quickly,
32:19
Speaker 1: because they reproduced so quickly, ran it through various cycles
32:23
Speaker 1: and found out what happened when you raised the temperature.
32:26
Speaker 1: And because everyone supposed that in Puerto Rica study it
32:30
Speaker 1: was the rising temperature of the forest that was doing
32:33
Speaker 1: the damage. Insects in the tropical forest are used to
32:35
Speaker 1: no change in temperature and suddenly you have bumped it up,
32:39
Speaker 1: almost overnight in a way two degrees centigrade. And the
32:43
Speaker 1: distribution means that out there in the tail, those rare
32:46
Speaker 1: nights when it's four degrees have gone from one a
32:49
Speaker 1: year to fifteen. So they put these beetles in the lab,
32:52
Speaker 1: and they gave them a heat wave of four degrees
32:55
Speaker 1: extra for five days, a typical heat wave that we've
32:58
Speaker 1: all suffered through, and it lowered their fertility by and
33:03
Speaker 1: then two weeks later they gave them a second, the
33:05
Speaker 1: second heat wave, and they were stera And a lot
33:10
Speaker 1: of people wrote in who were studying humans and other
33:13
Speaker 1: mammals and saying, yes, of course sperm count is terribly
33:17
Speaker 1: sensitive to heat and this ring, this ring is very true.
33:21
Speaker 1: But in Germany, where they have tolerance, where the temperature
33:24
Speaker 1: does change, we know it's more insecticides. There are these
33:26
Speaker 1: multiple reasons, exotic insecticides, fumes from coal burning, mercury, etcetera
33:33
Speaker 1: wafting through the air, and temperature changes. It's just turning
33:37
Speaker 1: out to be a brutal war for insects and without them. EO. Wilson,
33:43
Speaker 1: the famous insect and guy, would say, we can do
33:46
Speaker 1: without humans, but we absolutely can't do without insects. Last
33:50
Speaker 1: question on on philanthropy, Um, you created a prize for
33:54
Speaker 1: excellence in reporting on the environment. What why is such
33:59
Speaker 1: a prize? Nous? Sorry? Uh, We created it because there
34:04
Speaker 1: wasn't enough going on, and we abandoned it after a
34:07
Speaker 1: few years. Because in the great fall off on print, uh,
34:17
Speaker 1: the first guys to go with the bottom of the
34:19
Speaker 1: totem pole, and the bottom of the totem pole, sadly
34:21
Speaker 1: to say, with their environmental journalists. So pretty soon we
34:25
Speaker 1: found we were trying to award a prize to a
34:27
Speaker 1: non existent group of journalists, and we thought, we can
34:31
Speaker 1: use that money. It wasn't tiny. We can use it
34:34
Speaker 1: to get direct investigative journalism done and research, direct research done.
34:41
Speaker 1: And it was much I think, much more effective to
34:44
Speaker 1: do that. Quite fascinating. So let's talk a little bit
34:47
Speaker 1: about the current state of investing. I read something you
34:52
Speaker 1: had written some time ago that I found somewhat shocking,
34:55
Speaker 1: but I guess I shouldn't. From two thousand in you
35:01
Speaker 1: wrote that GMO lost half of its book of business. Uh.
35:05
Speaker 1: You guys had turned cautious while the market was screaming higher,
35:10
Speaker 1: warning of the dot com bubble. In fact, I should
35:13
Speaker 1: preface my remarks by saying you presciently warned of the
35:18
Speaker 1: Japanese bubble in the late eighties, the dot com bubble
35:22
Speaker 1: uh in the late nineties, the financial crisis and housing
35:26
Speaker 1: collapse in the mid two thousand's. What was that experience
35:30
Speaker 1: like in two thousand and did you sort of have
35:33
Speaker 1: a repeat of it in oh seven oh eight O
35:37
Speaker 1: seven oh. Wait was the only thing we nailed. We
35:39
Speaker 1: we got it pretty well, the timing down right, and
35:44
Speaker 1: lost very little business going into it. Um is entirely different.
35:52
Speaker 1: We had a good record running through and you normally
35:55
Speaker 1: think you have three years in the institutional business and
35:58
Speaker 1: and we lost half of business in less than two
36:01
Speaker 1: and a quarter years. Uh and and why was that?
36:04
Speaker 1: It's it's because it's completely untrue that you lose business
36:08
Speaker 1: in down markets. In down markets, the clients become catatonic
36:12
Speaker 1: in a serious decline, and they wait to see what
36:14
Speaker 1: has happened when the smoke is cleared and their nerve
36:16
Speaker 1: has returned. But in a bull market, they are absolutely
36:19
Speaker 1: dripping with adrenaline and there exchanging ideas on the golf
36:23
Speaker 1: course and they can't wait to to make more money
36:26
Speaker 1: than their neighbor. And you want to perform in a
36:30
Speaker 1: bull market, and your life um is is reduced in
36:35
Speaker 1: length that their patients drops like a stone. Barton Biggs
36:40
Speaker 1: had a famous quote, um bullish and wrong, and they're
36:44
Speaker 1: angry at you, bearish and wrong, and they fire you
36:47
Speaker 1: is that Is that a fair statement? Yes, I think
36:50
Speaker 1: that's a very fair statement. There is nothing you can
36:54
Speaker 1: do more dangerous to your career than than underperform in
37:00
Speaker 1: one of the great enthusiastic bubbles. And anyone who was
37:04
Speaker 1: around in is lucky they experienced a bubble bigger and
37:10
Speaker 1: better than a full of sound and fury and dot coms.
37:16
Speaker 1: And the real test that I love is that you
37:19
Speaker 1: went to the Greasy Spoon in Boston and instead of
37:22
Speaker 1: watching the Celtic replays, you were suddenly watching talking heads
37:26
Speaker 1: on MSNBC and other channels recommending the latest dot com,
37:30
Speaker 1: pets dot com or whatever. And that was right before
37:34
Speaker 1: or so collapse. Um, we actually predicted, and we're quoted
37:39
Speaker 1: in the Economists of saying the SMP we expected to
37:41
Speaker 1: drop and the NAS deck by And the SMP dropped
37:46
Speaker 1: by fifty point zero and the NAS deck by two.
37:51
Speaker 1: So um, they are not too bad. They were catastrophic
37:55
Speaker 1: declines for almost everybody. So after you were proven right
37:59
Speaker 1: about the dot com, did the clients come the half
38:02
Speaker 1: of the book that left, did they come back? I'm
38:04
Speaker 1: afraid to say not a single client that I'm aware
38:06
Speaker 1: of came back on the grounds that yes, we had
38:11
Speaker 1: been right and would have saved a lot of money
38:12
Speaker 1: and they've made a mistake. Many other clients came back
38:16
Speaker 1: who felt that they would have stood their ground and
38:19
Speaker 1: we were that kind of guys, and so the business
38:22
Speaker 1: flooded in and we made up all our losses with
38:24
Speaker 1: a lot of interest. Indeed, that was a lovely time
38:28
Speaker 1: to live through for us. So let's talk about the
38:31
Speaker 1: current circumstances. I would describe you as bullish on emerging
38:36
Speaker 1: market value but bearish on US large cap stocks. I'm
38:42
Speaker 1: using your forward seven year forecast as a basis. Uh,
38:47
Speaker 1: let me put a little little some numbers on that
38:50
Speaker 1: seven year forecast US large cap stocks minus three point
38:54
Speaker 1: nine percent is that per anum? Or is that total
38:57
Speaker 1: per annum for seven years to get it down to
38:59
Speaker 1: fair and then e M value you're talking about seven
39:03
Speaker 1: point seven percent on the positive side, which is in
39:06
Speaker 1: fact a little cheaper than it needs to be in
39:08
Speaker 1: the long run. So that means you could sit back
39:10
Speaker 1: with that and hope to get a decent return in perpetuity.
39:14
Speaker 1: So one would think, um, you should be lightning up
39:17
Speaker 1: on US stocks here and buying EM value is a well,
39:20
Speaker 1: that would be a very conservative statement. I think what
39:24
Speaker 1: you should do here is sell all of your US.
39:27
Speaker 1: There has never been a bigger gap between the US
39:30
Speaker 1: and Emerging than there is now. And those opportunities don't
39:33
Speaker 1: come very often, and they have a very old fashioned
39:37
Speaker 1: feel to them. And I describe it basically as you
39:40
Speaker 1: buy when they're very cheap, they become extraordinarily cheap, you suffer,
39:45
Speaker 1: you double down, maybe suffer a bit more, and then
39:48
Speaker 1: you win. And if you can take the pain, you
39:52
Speaker 1: always win. On those kind of bets. There's very little
39:55
Speaker 1: chance that you'll come back in ten or twenty years
39:58
Speaker 1: and Emerging will not have been the pants off the US.
40:01
Speaker 1: Do you look at specific countries or regions or is
40:04
Speaker 1: it just by all of the um You do the
40:07
Speaker 1: best you can to optimize the return. And I don't
40:10
Speaker 1: want to get into my colleagues territory, but yes, you
40:14
Speaker 1: would wait the better looking countries in terms of true
40:17
Speaker 1: value growth compared to cost, and and pick the best
40:23
Speaker 1: stocks and the best industries to the best of your ability.
40:27
Speaker 1: Earlier this year, you talked about a potential US equities
40:30
Speaker 1: melt up before the next down cycle. Are we still
40:33
Speaker 1: looking for a melt up? I think the odds of
40:38
Speaker 1: dropped way down because we're living in a rather ancient
40:42
Speaker 1: economy and a rather ancient stock market. Both of them
40:45
Speaker 1: are two of the longest that there's ever been UM
40:50
Speaker 1: and we were doing splendidly through January. January, as you remember,
40:54
Speaker 1: was a wonderful speculative month. Uh and and the market
40:58
Speaker 1: was up eight percent for the month. And and then
41:01
Speaker 1: we got into this strange era where the administration rattled
41:07
Speaker 1: the currency markets, which whiplashed through as it usually does,
41:11
Speaker 1: to the riskier end, the emerging market end, and the
41:17
Speaker 1: dollar is in a crisis, the blue chap so the
41:20
Speaker 1: dollar was strong, helping local stock prices. And and then
41:26
Speaker 1: we had trouble with agreements and allies and NATO and
41:34
Speaker 1: go down the list, go go down the list. And
41:37
Speaker 1: it created a not an undercurrent, but an overcurrent, if
41:40
Speaker 1: you will, of of nervousness on on many fronts. And
41:44
Speaker 1: that is not the juice with which a a great
41:48
Speaker 1: bubble proceeds. That didn't exist in we had Greenspan saying
41:56
Speaker 1: the dot com and and the internet would dry have
42:00
Speaker 1: a way the dark clouds of ignorance and introduce a
42:02
Speaker 1: permanent new era of higher this and higher that and
42:05
Speaker 1: better this. It was almost poetic, and this time we
42:09
Speaker 1: had everyone going from one little nervous twitch to another,
42:13
Speaker 1: So I think it was nipped in the bud. Now,
42:16
Speaker 1: having said that, the market has a history of being resilient,
42:21
Speaker 1: I think it's quite likely. Since we're in the sweet
42:25
Speaker 1: spot of the presidential cycle, this is the time when
42:28
Speaker 1: presidents look to the federal reserve to stimulate the economy
42:32
Speaker 1: because it needs at least the year running start to
42:36
Speaker 1: produce the best labor for election. And what moves the
42:42
Speaker 1: dial on election day we studied at some considerable length,
42:46
Speaker 1: and it's the shifting employment six months up to the election.
42:52
Speaker 1: A year before, it doesn't matter, it's all forgotten. Six
42:54
Speaker 1: months before the election. You've got to have a strong
42:58
Speaker 1: looking labor movement, a labor results, and to do that,
43:04
Speaker 1: you've got to stimulate the economy a year or eighteen
43:07
Speaker 1: months ahead of it to get the lag effect. And
43:10
Speaker 1: that's what they do, and they've done it since nineteen two.
43:14
Speaker 1: The returns in the seven month window from October of
43:19
Speaker 1: this year through April of next year in every presidential cycle,
43:23
Speaker 1: which is the theoretically perfect time to do economic stimulus
43:27
Speaker 1: since ninety two, that has beaten the remaining forty one
43:30
Speaker 1: months the forty eight month presidential cycle. Just think about that.
43:34
Speaker 1: The seven months has beaten the forty one months. So
43:37
Speaker 1: that's since nine two. So this is the last gasp
43:41
Speaker 1: opportunity for a melt up. I don't think it's any longer,
43:45
Speaker 1: but I think it's maybe twenty five chance that we
43:48
Speaker 1: will have a handsome rally between now and the end
43:51
Speaker 1: of April. You mentioned all of the international intrigues and
43:58
Speaker 1: various policies and packs and what have you. I would be, um,
44:03
Speaker 1: not doing my job if I didn't ask you about
44:06
Speaker 1: the tariffs and trade wars. What is the impact of
44:10
Speaker 1: this president's who has said it's easy to win a
44:14
Speaker 1: trade war? Um? What what is the impact of these tariffs?
44:17
Speaker 1: Is this potentially inflationary? Is this potentially um something that
44:22
Speaker 1: could knock the economy off its footing? So net net,
44:27
Speaker 1: it's deflationary because because it discourages global growth, okay, and
44:33
Speaker 1: so you have weaker growth, slightly higher unemployment, and and
44:39
Speaker 1: as we're playing with general motors, and that puts pressure
44:42
Speaker 1: on wages. And it's very hard to have inflation when
44:46
Speaker 1: you have downward pressure on wages. So how are you
44:48
Speaker 1: going to have a stimulative presidential cycle eighteen months in advance?
44:53
Speaker 1: If there's a tariff trade war going on that doesn't
44:56
Speaker 1: sound like it's productive for the party that has the
44:59
Speaker 1: White House. No, it's not productive. So two things would
45:02
Speaker 1: have to happen from chance to come right. You'd have
45:06
Speaker 1: to have the FED ease up a bit slow slow
45:11
Speaker 1: the rate hikes. Slow the rate hikes. No, they can
45:14
Speaker 1: have one or two, but not four or five. And
45:18
Speaker 1: and to have the administration cool it on trade wars
45:22
Speaker 1: and make a quote surprise announcement of an agreement with China.
45:27
Speaker 1: And and there's your milk. And then you get some resilience.
45:30
Speaker 1: That sounds pretty good. Can you stick around a little bit?
45:33
Speaker 1: I have some more questions for you. We have been
45:35
Speaker 1: speaking with GMOs Jeremy Grantham. If you enjoy this conversation,
45:40
Speaker 1: check out our podcast extras, where we keep the tape
45:43
Speaker 1: rolling and continue discussing all things investment related. You can
45:47
Speaker 1: find that at iTunes, Overcast, Stitcher, Bloomberg dot com, wherever
45:53
Speaker 1: your final podcasts are sold. We love your comments, feedback
45:56
Speaker 1: in suggestions right to us at m IB podcast at
46:00
Speaker 1: Bloomberg dot net. You can check out my daily column
46:03
Speaker 1: at Bloomberg dot com slash Opinion. Follow me on Twitter
46:07
Speaker 1: at rid Holts. I'm Barry rid Holts. You're listening to
46:10
Speaker 1: Masters in Business on Bloomberg Radio. Welcome to the podcast, Jeremy.
46:21
Speaker 1: Thank you so much for doing this. I've been looking
46:24
Speaker 1: forward to having this conversation with you for so long.
46:27
Speaker 1: I don't know if you remember. You and I had
46:29
Speaker 1: a lunch, uh sometime last year, and uh, I should
46:33
Speaker 1: have recorded that. That was endlessly fascinating. And all it
46:37
Speaker 1: did was remind me of all the questions I had
46:40
Speaker 1: for you. Before I get to my favorite questions, there's
46:43
Speaker 1: one or two things I missed that I wanna get to. Um. God,
46:49
Speaker 1: I could keep you here for another hour, but I
46:51
Speaker 1: know you have places to be. So first, you describe
46:54
Speaker 1: yourself as GMOs Chief of Propaganda, explain that title. To
47:02
Speaker 1: be honest, I have not been making important investment decisions
47:08
Speaker 1: for quite a few years. I think my last input
47:11
Speaker 1: was exiting emerging markets in July of oh eight. That
47:16
Speaker 1: worked out to be pretty good. That worked out splendidly,
47:19
Speaker 1: and it was the twelve hour But what the hell
47:22
Speaker 1: saved an amazing amount of money? Um. But other than
47:27
Speaker 1: that we have terrific teams. I'm eighty years old. They
47:31
Speaker 1: should be making their own mistakes and and and making
47:36
Speaker 1: their own hits. Um. So what what did that leave me?
47:40
Speaker 1: I asked myself? UM? And Lucy speaking communications, or as
47:46
Speaker 1: I like to call it, propaganda. Um. And since I've
47:49
Speaker 1: always been drawn to big picture items, that that's a
47:52
Speaker 1: natural cannon fodder for propaganda. I have overwhelmingly more interest
47:57
Speaker 1: in the big, the big issues of climate change. Do
48:02
Speaker 1: we have enough resources to get the job done? What
48:05
Speaker 1: is the role of growth in the long term economy
48:07
Speaker 1: when you can't have compound growth in a finite planet.
48:10
Speaker 1: How are we going to deal with that? What is
48:12
Speaker 1: the role of capitalism now that it's so profit centered
48:16
Speaker 1: for the short term and has little interest in the
48:18
Speaker 1: long term. What are the consequences? What are the consequences
48:22
Speaker 1: of the US corporate system having so much power that
48:26
Speaker 1: it practically controls the government and the profit margins have
48:29
Speaker 1: gone up and squeeze labored down by three or four points.
48:34
Speaker 1: The consequences of these kind of issues absolutely fascinating and
48:38
Speaker 1: frankly being there done that in terms of stock picking
48:41
Speaker 1: and industry picking and sanct to picking and I'm happy
48:45
Speaker 1: to leave that to my colleagues. And um, so you
48:49
Speaker 1: mentioned big picture, let's talk a little bit about the
48:52
Speaker 1: world's of bubbles. You were right there on the Japanese bubble,
48:56
Speaker 1: perhaps a little early on the dot com bubble, on
48:59
Speaker 1: the Great Financial Crisis. The timing was as good as
49:03
Speaker 1: it gets. So the first question I have to ask
49:06
Speaker 1: related to bubbles is are there any visible these days? Where?
49:11
Speaker 1: And when? What do you see to take a little
49:14
Speaker 1: bit of credit from a generally tough h environment. Back
49:21
Speaker 1: when I suggested a melt up, I did point out
49:25
Speaker 1: in a little box in that paper that I thought
49:28
Speaker 1: bitcoin was a classic bubble, the essence of bubble, And
49:33
Speaker 1: it was fifteen thousands the day I wrote right well,
49:35
Speaker 1: from the highest were down word about So for something
49:39
Speaker 1: that volatile, this is by no means impressive decline. Would
49:44
Speaker 1: would be an intra week setback when down to about
49:48
Speaker 1: four thousand from about four thousand from fifteen thousand. But
49:51
Speaker 1: when you've gone up fifteen times in no time flat,
49:54
Speaker 1: you might reason reasonably think of bubble breaking as a
49:58
Speaker 1: ninety declin. We're we're else? Are you looking at bubbles?
50:02
Speaker 1: Anything else standing out for me? A bubble requires overt
50:10
Speaker 1: euphoria and other demonstrations, and they to me have been
50:15
Speaker 1: a little lacking. Perhaps they were beginning to take place
50:21
Speaker 1: in in the fangs, and the fangs have now receded
50:27
Speaker 1: in what feels more like um reorienting the market moving
50:32
Speaker 1: from one group to another than the beginning of the
50:36
Speaker 1: end of a major collapse. A rotation, not a bubble rotation,
50:40
Speaker 1: thank you, not a bubble pop. To me, it feels
50:43
Speaker 1: that way. Uh. And and at the moment, once again,
50:47
Speaker 1: as we've had dominating this tenure nine year ball market,
50:51
Speaker 1: we have been climbing the wall of worry. There's always
50:53
Speaker 1: plenty to worry about. And you read it freely. It's
50:56
Speaker 1: not dripping with optimism. When was it. I'll tell you when.
51:00
Speaker 1: It was for a brief period back in January. Other
51:03
Speaker 1: than that, this has been quite a pessimistic major bull market.
51:07
Speaker 1: Hasn't the most hated bull market in history. Um. In fact,
51:12
Speaker 1: there's an argument to be made that since the dot
51:14
Speaker 1: com I'm sorry, since the Great Financial Collapse, investors seemed
51:18
Speaker 1: to be suffering from a form of post traumatic stress,
51:22
Speaker 1: and they've been very reluctant to embrace the bull with
51:26
Speaker 1: both hands. Yeah, is that what's needed in order for
51:30
Speaker 1: that to get a classic bubble breaking um, that's what's needed.
51:35
Speaker 1: And what provided the juice in oh eight was the
51:39
Speaker 1: housing market, because we defined in the old days a
51:44
Speaker 1: bubble as a two sigma once in a forty year breakout,
51:48
Speaker 1: and the US housing bubble did a three sigma. That's
51:52
Speaker 1: the once in several hundred years. Never in history had
51:56
Speaker 1: the entire US real estate market gone up a lot
52:00
Speaker 1: at the same time it would bubble in Chicago, crash
52:03
Speaker 1: in Florida. Oh, but this one, previously, this one, everything
52:08
Speaker 1: went up together. And it took years of moral hazard
52:12
Speaker 1: and the FED talking it up, and and and the
52:15
Speaker 1: FED saying things about the housing market that the US
52:18
Speaker 1: housing market unquote merely reflects a strong US economy, etcetera, etcetera,
52:23
Speaker 1: And and then the one I really loved. The US
52:25
Speaker 1: housing market has never declined, meaning it never would, which
52:29
Speaker 1: by the way, is completely false. If you go through history,
52:31
Speaker 1: there are many examples of the housing market supplin it declining,
52:35
Speaker 1: but only a little bit. And what he should have
52:37
Speaker 1: said is the U s hasing market has never had
52:40
Speaker 1: a major bust because it has never had a collective
52:43
Speaker 1: major bubble, and now it has had a major bubble.
52:46
Speaker 1: The question that they should have been asking is has
52:48
Speaker 1: there ever been a major bubble in anything that didn't bust?
52:52
Speaker 1: And the answer to that is, in general terms no,
52:56
Speaker 1: But there is a special case in real estate. If
52:59
Speaker 1: you live in a real estate market where the zoning
53:01
Speaker 1: is tightly controlled Sydney, London, you can San Francisco. You
53:07
Speaker 1: can have aberrant looking bubbles. If you live in a
53:10
Speaker 1: real capitalist market like the US Spain Island, where house
53:16
Speaker 1: prices went up and you covered the whole of Ireland
53:19
Speaker 1: and new houses and you and the south of Spain
53:22
Speaker 1: began to sink under the water from the weight of
53:24
Speaker 1: new apartment building, and the US built an extra million
53:28
Speaker 1: and a half houses over Trent in response, then you
53:31
Speaker 1: will have a classic, well behaved bubble, which we had
53:35
Speaker 1: in the US housing market. Without that, the world would
53:38
Speaker 1: have been quite different. It was driven and the power
53:40
Speaker 1: and the juice was provided by the housing market and
53:42
Speaker 1: all the amazing subprime stuff that went with us. So
53:46
Speaker 1: you mentioned moral house hazard. Um, I don't find a
53:50
Speaker 1: lot of people who share my belief on this, but
53:53
Speaker 1: I have to bring up yours. You have suggested that
53:57
Speaker 1: we should have let more than just Lehman bro others.
54:00
Speaker 1: Visit that lovely building downtown with the columns and the
54:04
Speaker 1: bankruptcy judges inside, tell us about that. Yeah. I think
54:09
Speaker 1: one of the problems we have today, with the steadily
54:12
Speaker 1: increasing levels of debt on each cycle wave, is that
54:16
Speaker 1: the moral hazard has never been truly broken. In the end.
54:19
Speaker 1: The bet has been if things are going well, you're
54:21
Speaker 1: on your own to make money, and if things go badly,
54:23
Speaker 1: we will come and help you. And as long as
54:26
Speaker 1: that is there, there will be more risk taken each cycle,
54:30
Speaker 1: as more or less there has been, so you end
54:32
Speaker 1: up with privatized profits, but socialized losses. Socialized losses. They
54:37
Speaker 1: bailed out the rich bankers and made the homeowners suffer,
54:40
Speaker 1: and I thought that was a bad choice. They should
54:42
Speaker 1: have done more to help the homeowners and and less
54:45
Speaker 1: to help the bankers. And I think obviously you can't
54:49
Speaker 1: let a I G. City and the others all go
54:52
Speaker 1: under together, but you could and should probably have let
54:55
Speaker 1: one of them go. The difference between City and and
55:00
Speaker 1: Lehman and a I G. Is that Goldman Sacks had
55:03
Speaker 1: an enormous amount of its future wealth and income hinging
55:06
Speaker 1: on a i G insurance products that were insuring all
55:10
Speaker 1: the derivatives, and yeah, the derivatives which no sane person
55:13
Speaker 1: would ever have ensured, was offered insurance by some dope
55:18
Speaker 1: department of a I G. In such enormous quantity that
55:21
Speaker 1: had they defaulted, the future of Goldman Sacks is an
55:24
Speaker 1: extreme doubt. I think they would have failed. Really, it's yes.
55:27
Speaker 1: And if you say, what is really different between Lehman
55:30
Speaker 1: and a I G. They said they couldn't bail out Lehman,
55:35
Speaker 1: but they could bail out a I G. And one
55:38
Speaker 1: of the huge differences is that enormous amount of junk
55:42
Speaker 1: of which was covering Goldman Sacks and everyone else at
55:47
Speaker 1: it together. But my choice, nevertheless would have been city. Well,
55:52
Speaker 1: what is this the third bail out they've gone through?
55:54
Speaker 1: And they were technically bankrupt if you mark them to market,
55:57
Speaker 1: they were way under and badget and banking authorities say,
56:02
Speaker 1: you know, if you have a run on the bank,
56:03
Speaker 1: you'd better protect them. This wasn't a run on the bank.
56:06
Speaker 1: This was technical bankruptcy. They had made a lot of
56:08
Speaker 1: bets that didn't work. They were bankrupt. There's a big
56:11
Speaker 1: difference between liquidity and insolvents and and insolvency. And this
56:15
Speaker 1: was way on the wrong side of insolvency. And you
56:18
Speaker 1: you should have picked one of a I G or
56:20
Speaker 1: city and let it go, and you would have had
56:23
Speaker 1: a deeper You would have had a deeper pull back
56:26
Speaker 1: in something like yeah down five thousand. It would have
56:31
Speaker 1: been healthier in but it would have recovered just the same.
56:33
Speaker 1: And today the undertone would be slightly different and most
56:37
Speaker 1: of the data would be the same. In my opinion,
56:40
Speaker 1: quite fascinating. I only have you for a few more minutes,
56:42
Speaker 1: can I? There are two a couple of issues. Sure,
56:45
Speaker 1: I really think that I have missed. You asked me
56:48
Speaker 1: what we do with the Grantham Foundation. Yes, and I
56:51
Speaker 1: should say a very important of all our grant making
56:54
Speaker 1: is done to communications fifteen little groups who do investigative journalism,
57:00
Speaker 1: who try and change the hearts and minds of politicians
57:03
Speaker 1: and the general public to counterbalance the forces of obfuscation
57:09
Speaker 1: that we have discussed. Is that effective? Are you seeing
57:11
Speaker 1: progress in that space? Well, it's a bit of an
57:15
Speaker 1: unequal struggle. We put some money into the carbon tax
57:19
Speaker 1: in Washington State and lost. We were outspent twelve to one.
57:23
Speaker 1: But you have to do pick your spots and do
57:25
Speaker 1: the best you can, uh. And that's what we try
57:28
Speaker 1: and do. And I think in terms of investigative journalism
57:31
Speaker 1: and other efforts, it's it's first rate. Um. Otherwise, we
57:34
Speaker 1: look for the point of maximum leverage where uh a
57:39
Speaker 1: big organization like w w F for the Nature Conservancy
57:44
Speaker 1: is doing something that we think really impacts the problems
57:48
Speaker 1: of agriculture or a climate change, the water, uh fishing,
57:54
Speaker 1: things that will really matter to the well being of
57:57
Speaker 1: the world as we go forward. Let me ask you
57:58
Speaker 1: about to go on? Sorry. Yeah. The The other thing
58:01
Speaker 1: is I wanted to elaborate on the population problem in Africa,
58:06
Speaker 1: where all of the three billion that's forecasts for incremental
58:09
Speaker 1: population between now and is basically an Africa. And let
58:14
Speaker 1: me just give you some terrible numbers. When I was born,
58:16
Speaker 1: the twenty eight million Nigerians there are a hundred ninety
58:19
Speaker 1: today and the mid range forecast twenty one from the
58:22
Speaker 1: u N is seven hundred and eighty million. Okay, that
58:26
Speaker 1: country's support of course, not so between now and then
58:30
Speaker 1: what misery and collapse and basically Robert Barons and regional
58:37
Speaker 1: bandit chiefs are going to go on that will be
58:40
Speaker 1: your notemare over there a nightmare? And if you ask
58:43
Speaker 1: them today would like to emigrate? And what that will
58:46
Speaker 1: be in ten twenty years? Lord and leaned Nes. And
58:50
Speaker 1: you see the damage that hundreds of thousands of immigrants
58:53
Speaker 1: have done to the liberal traditions of Europe and the
58:56
Speaker 1: stability of politics. And you replace that an attempt to
59:00
Speaker 1: have hundreds of millions you simply can't get there from.
59:04
Speaker 1: And how much does the destabilizing of European politics effect
59:09
Speaker 1: the behavior of the Russias and China's and the us
59:12
Speaker 1: is of the world, the megapowers And where does that
59:15
Speaker 1: leave us? I think that is the thing we should
59:17
Speaker 1: really focus our attention quite quite uh frightening. Um. You
59:22
Speaker 1: mentioned the Nature Conservancy. I was curious as to because
59:27
Speaker 1: I noticed in this part of the country I frequently
59:30
Speaker 1: see spaces purchased or donated to the nature Conservancy. There's
59:35
Speaker 1: the little sign with the green leaf. How effective as
59:39
Speaker 1: an environmental strategy is the idea of taking a parcel
59:44
Speaker 1: of land and removing it from farming, from development, from housing.
59:48
Speaker 1: What does that do for us? You need them genuinely
59:52
Speaker 1: wild pockets and cards between them to maintain a hope
59:56
Speaker 1: of having a successful wildlife any sort of biodiversity. Yes,
1:00:02
Speaker 1: WWF recently said that we had lost six of the
1:00:05
Speaker 1: mass of all the wildlife added together above the level
1:00:09
Speaker 1: of insects. So we are not exactly winning the struggle.
1:00:12
Speaker 1: So you need that, But you also need to to
1:00:16
Speaker 1: limit climate change. If you have all these lovely cards
1:00:21
Speaker 1: and the climate goes up by four and a half
1:00:23
Speaker 1: degrees centigrade, most of what you've done, it's wasted any difference. Alright,
1:00:27
Speaker 1: So I only have you for another five minutes. Let's
1:00:29
Speaker 1: get to our speed round with our favorite questions. God,
1:00:32
Speaker 1: I could keep you here for hours and hours more,
1:00:34
Speaker 1: but your wife will kill me. So all right, So
1:00:39
Speaker 1: tell us the most important thing we don't know about you. No,
1:00:44
Speaker 1: I'm an open book, open Why don't you see? That's
1:00:46
Speaker 1: what you get Early mentors. Who are the people who
1:00:49
Speaker 1: helped shape your career. I think my grandfather. He was
1:00:54
Speaker 1: brought up Quaker. He gave up quakery, but he stayed
1:00:58
Speaker 1: with the spirit of of being a Quaker. He was
1:01:02
Speaker 1: a good person. He didn't believe in flamboyant spending. He
1:01:06
Speaker 1: became quite wealthy and used his money very wisely and discreetly.
1:01:13
Speaker 1: I think that's set an excellent example. And and by
1:01:17
Speaker 1: the way, Yorkshire values are very much value oriented from
1:01:23
Speaker 1: an investor's point of view, and so that when you
1:01:25
Speaker 1: read Ben Graham, you you tend to go, you know,
1:01:30
Speaker 1: cheaper is better than more expensive. I get that, and
1:01:35
Speaker 1: I don't. I don't see quite as much magic in
1:01:38
Speaker 1: the value here is perhaps because of that background. So
1:01:42
Speaker 1: so let's talk a little bit about the investors that
1:01:45
Speaker 1: influenced your approach to investing, What thinkers have shaped the
1:01:49
Speaker 1: way you look at markets. Ben Graham obviously, um no,
1:01:54
Speaker 1: I don't think Ben Graham did much. I will give
1:01:57
Speaker 1: it to Dean le Baron, who I had a hard
1:01:59
Speaker 1: time with. In general, he was brilliant propagandist. He he
1:02:05
Speaker 1: could sweet talk the pension fund officers out of the
1:02:10
Speaker 1: trees and take them off to Russia and on trips
1:02:15
Speaker 1: and things like this. And what he he showed me
1:02:18
Speaker 1: was that we're a pretty boring industry and a little
1:02:20
Speaker 1: bit of bazaars can go a long way, and how
1:02:24
Speaker 1: important it is to project your ideas. Having great ideas
1:02:28
Speaker 1: and not projecting them doesn't get you that far. So
1:02:31
Speaker 1: I owe him that. So let me get that on
1:02:34
Speaker 1: paper at least, I've said one good thing about being
1:02:36
Speaker 1: the baron, and that's a pretty good thing. And I
1:02:41
Speaker 1: learned an enormous amount from personal experience speculating in in
1:02:44
Speaker 1: what was a very uh interesting speculative surge in nine
1:02:51
Speaker 1: in tertiary quaternary stocks, tiny little stocks that would tend
1:02:56
Speaker 1: to pull and then collapse. And we had an interesting
1:02:59
Speaker 1: group of people like changing ideas, and we made and
1:03:02
Speaker 1: lost fortunes. And I made enough to buy a house
1:03:07
Speaker 1: in Newton without without a mortgage and a BMW. But
1:03:11
Speaker 1: I didn't do it I could have done. Instead, I
1:03:15
Speaker 1: maintained my speculative position in stocks that disintegrated, and from
1:03:21
Speaker 1: then on, rather like Canes getting it out of his
1:03:24
Speaker 1: system with commodities and and Ben Graham going into the
1:03:29
Speaker 1: Great Crash, leveraged long from then on you get to
1:03:34
Speaker 1: be much more conservative. Let's since you mentioned Keynes, let's
1:03:38
Speaker 1: talk about some of your favorite books. What what fiction?
1:03:41
Speaker 1: Non fiction, investing or not. What are some of your
1:03:44
Speaker 1: favorite Well, I made a little list quickly. The ones
1:03:48
Speaker 1: I like to recommend is one is called Dirt, The
1:03:51
Speaker 1: Erosion of Civilizations Dirt by David Montgomery, and and it
1:03:57
Speaker 1: looks at what happened to bad farming practices, and it
1:04:00
Speaker 1: did to the ancient Greeks, the Assyrians, the Babylonians, and
1:04:04
Speaker 1: and and the Romans and the Mayans and the commerce.
1:04:07
Speaker 1: They overworked their local territory and when the weather turned
1:04:12
Speaker 1: against them, that was it. It wasn't that was They
1:04:14
Speaker 1: didn't have any resilience. Another one somewhat the same theme
1:04:18
Speaker 1: was called in Moderate Greatness, which I recommended and moderate
1:04:22
Speaker 1: Greatness Yes, which is a quote from the Decline and
1:04:25
Speaker 1: Fall of the Roman Empire. And the subtitle is Why
1:04:29
Speaker 1: Civilizations Fail by William Oval, And that's a very short
1:04:33
Speaker 1: book that covers all the reasons hubrists, complexity, overworking your
1:04:38
Speaker 1: local resources, and and so on m that brings civilizations down,
1:04:44
Speaker 1: which is really quite terrifying because almost everything they list
1:04:48
Speaker 1: applies to today's modern world to some considerable degree. And
1:04:53
Speaker 1: the one that I like the most really as hubris,
1:04:56
Speaker 1: because every civilization tends to think that they're going to
1:04:58
Speaker 1: survive because they're so god damn brilliant. And and the
1:05:03
Speaker 1: infinite capacity of the human brain, which is illiterate historically,
1:05:07
Speaker 1: because the brains were the same for the Assyrians and
1:05:10
Speaker 1: the Babylonians, as we have today on the Mayans. But
1:05:14
Speaker 1: every civilization thinks it's special. And after four hundred years
1:05:18
Speaker 1: and you're brilliant viaducts, the Romans get pretty confident, and
1:05:20
Speaker 1: finally the way of bad luck and bad fortune brings
1:05:25
Speaker 1: them down. And that's what we have. We're at two
1:05:30
Speaker 1: or three hundred year old organization, sorry civilization, modern modern society,
1:05:35
Speaker 1: and we're the first global one. But we're not old,
1:05:37
Speaker 1: we're not seasoned, and we're nothing. There are Mayan civilizations.
1:05:41
Speaker 1: To Carl, it's twelve hundred years of of of civilization
1:05:45
Speaker 1: before it was brought down. Any of the books before
1:05:49
Speaker 1: we get to our final question. Um, yes, there's a
1:05:53
Speaker 1: very good book by Charles Man called The Wizard and
1:05:56
Speaker 1: the Prophet, and he looks at really this continuous struggle
1:06:00
Speaker 1: between the Optimists and the Mathusians corn Ucopeans I call them,
1:06:03
Speaker 1: and the Marthusians bullog who who who engineered the green
1:06:07
Speaker 1: revolution that saved millions from starvation? And a guy called
1:06:12
Speaker 1: back two who represented mouth Thus and be careful and
1:06:16
Speaker 1: try and sustain your long term ability. The Wizard and
1:06:20
Speaker 1: the Prophet, The Wizard and the Prophet, And that sounds fascinating.
1:06:23
Speaker 1: And our final question, what do you know about the
1:06:25
Speaker 1: world of investing today? You wish you knew forty years
1:06:29
Speaker 1: or so ago when you were getting started. The world
1:06:36
Speaker 1: was so straightforward for years ago, and there was so
1:06:38
Speaker 1: such a limit on the on the talent in the
1:06:41
Speaker 1: business that if you showed up and used your brains,
1:06:44
Speaker 1: you were likely to do pretty well. And he didn't
1:06:49
Speaker 1: need any help. And now when I've learned all my lessons,
1:06:53
Speaker 1: the market is so difficult and so full of talent
1:06:56
Speaker 1: you need lots of help. So that question doesn't really
1:07:01
Speaker 1: compute for me. Well, thank you so much, Jeremy for
1:07:04
Speaker 1: doing this. This was absolutely fascinating. We have been speaking
1:07:08
Speaker 1: to Jeremy Grantham. He is the chairman and co founder
1:07:13
Speaker 1: of GMO, managing over seventy one billion dollars. If you
1:07:18
Speaker 1: enjoy this conversation, well, be sure to look Up an
1:07:21
Speaker 1: Inch or Down an Inch on Apple iTunes, overcast at
1:07:25
Speaker 1: your Bloomberg dot com wherever your final podcasts are sold.
1:07:29
Speaker 1: Then you can see the other coming up on twoft.
1:07:33
Speaker 1: I want to say to prior conversations we've had, uh,
1:07:38
Speaker 1: They're available for download for free. UH. We love your comments,
1:07:42
Speaker 1: feedback and suggestions. You can write to us at m
1:07:46
Speaker 1: IB podcast at Bloomberg dot net. Uh, you check out
1:07:50
Speaker 1: my daily column. You can find that at Bloomberg dot
1:07:53
Speaker 1: com slash Opinion. Follow me on Twitter at Ritholtz. I
1:07:58
Speaker 1: would be remiss if I did not think the crack
1:08:01
Speaker 1: team that helps put these conversations together each week. Michael
1:08:06
Speaker 1: Batnick is my head of research. Alatica val Bron is
1:08:10
Speaker 1: our project manager, Taylor Riggs is our booker. Slash producer
1:08:16
Speaker 1: Carolin O'Brien is our audio engineer. This year, I'm Barry Ridholts.
1:08:21
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio