Jeremy Grantham’s Four Tips for Taking Advantage of the Market “Bubble”
The main stock indices of the West accumulate double-digit increases so far this year, and even exceed a 20% revaluation in some cases. The alarm bells about a bubble are more and more widespread, but this does not mean that there are no opportunities in the market to continue to achieve profits.
So at least they believe it from the investment firm Grantham, Mayo & Otterloo (GMO), whose main partner is the legendary investor Jeremy Grantham. He already predicted the burst of the dot-com bubble and the 2008 mortgage crisis.
Grantham notes that we are facing a “magnificent bubble” and sees the S&P 500 likely to fall 10% or more in the coming months . In this regard, he pointed to meme stocks, SPACs, and cryptocurrencies as signs of overconfidence.
To hedge against this correction, GMO insists on the need to resort to value shares . In their latest quarterly report, they emphasize that “the value deserves to win (to the growth or growth stocks ) because it is at its cheapest point in relation to growth in the last 20 years”. “The last time we saw value so cheap with respect to growth was during the last months of 1999,” they recall, after which it benefited from a significant boost.
In this regard, they bet on this type of securities for the future, but offer four other guidelines for the investor to enter the market now with an eye to the long term.
First, they recommend “bursting the bubble” by betting on cheap value stocks or shorting expensive growth stocks . A second option may be to avoid the bubble by “investing in liquid alternatives . “
As a third possibility, GMO invites you to “concentrate assets outside the bubble” by investing in the value of emerging countries, in small capitalized Japan or in cyclical stocks. “Finally, the Grantham team calls for keeping durations shorter than normal for fixed income and use active credit management.
Two GMO bets
Following this line, among the securities that GMO currently has in its portfolio is US Bancorp , the parent company of the financial entity US Bank. The investment outlook will possibly be given by a growth in inflation that leads central banks to withdraw economic stimuli ( as is already happening ) and raise interest rates. So far this year the bank has appreciated more than 32% and, although analysts seem divided between buy and hold, the average 12-month target price is 9.9% above its current price.
They also have one of the giants of consumption: Coca-Cola . The beverage brand has risen just 2% since January, and experts are also debating whether to hold or buy, but the average of analysts places the share price in a year 12% above what it is worth today.