Market contrarian Jeremy Grantham, best known for not riding with the bullish herd, is more focused on avoiding bear traps these days.
The market's worst collapse in recent memory has inspired terror and paralysis, and investors have to “pre-commit” to phasing back into equities at specific, “sufficiently cheap,” levels if they hope to come out on top, the chairman of Grantham Mayo Van Otterloo & Co. LLC says.
That requires a battle plan. And while putting all of one's money back into equities at the market's bottom would be the ideal plan, a multistep shift at predetermined levels is more realistic, Mr. Grantham said in an interview.
GMO is two steps into its plan for the Boston-based firm's Global Balanced strategies. In October, when equities tumbled to 39% of GMO's global balanced portfolios — below both the target range's 45% minimum and a neutral position of 65% — GMO shifted a 16% chunk of the portfolio into equities, lifting their share of the total to 55%, Mr. Grantham said. On March 9, after the S&P 500 dropped to a preset trigger level of 740, GMO added another 8% or so.
Despite the market's recent bounce, Mr. Grantham said he still sees a chance the S&P 500 could fall below 600 — which would make it easier to execute the final steps of GMO's battle plan, which he declined to outline. While the economic outlook will remain bleak and complicated for years, the market will begin anticipating a rebound sooner than that, and investors who continue to hug their cash will miss out on potential gains, Mr. Grantham said.
“Having a plan and sticking to it” will separate the top 10% of investors from the rest of the pack, he predicted. — Douglas Appell
