He got into the investing business in the late 1960s because it seemed to pay well – and it probably suited those attributes.
By the time he founded his own firm, GMO, in 1977, he had developed his signature investing style: look for underpriced stocks because everything reverts to the mean eventually.
He and his colleagues compiled a dataset of all the previous bubbles, which proved his point: however big the bubble and bust, the market eventually reverted to the trend.
So when Grantham saw the dotcom boom turning into a bubble in 1997 – with stock prices averaging 21 times earnings, like in 1929 – he assumed it would soon burst.
It took another two years and the market got all the way to 35 times earnings. In the meantime, they underperformed their benchmark by six points, while those who stayed at the front of the roller-coaster outperformed by up to 12 points.
“You do that for a couple of years and it turns out you lose a lot of business. As I like to say, history says that you will go back to the old trend but not necessarily with the same clients you left with,” he says wryly.
“We made the right bets for the right reason. We won the bet, we saved the money. But no one comes back.”
The current bubble is shaping up into the biggest he’s seen. But it’s complicated by the fact that, unlike in the dotcom era, the “magnificent seven” tech companies – Alphabet (which owns Google), Amazon, Apple, Meta (which owns Facebook), Microsoft, Nvidia and Tesla – are solid businesses.
“They meet some of the characteristics of the things you wouldn’t mind owning in a cataclysm. I wouldn’t mind owning Google probably, if I knew we were going into the next Great Depression,” he says.
But he compares the AI boom to the railroad mania of the Victorian era. Railways were going to change the world but there were too many projects and too much money.
“The legend is, six lines were built or planned between Leeds and Manchester. You only need one and maybe two will not be a total disaster. But from then on, everyone loses their money – all of them, even the first guys. And they did.”
This happened in the dotcom boom as well. Amazon shares increased sixfold during the bubble then slumped 92pc in the bust: “And then out of the rubble, it inherited the world.
“Just because Nvidia will go down a lot one day, that doesn’t mean it isn’t a great company that will eventually end up inheriting the world. Although technologically, it does seem very vulnerable to a new idea, a new type of chip or a replacement for a chip.”