How ‘Permabears’ Make Money by Selling Fear

• Some permabears will predict doom and gloom every year
• Eventually, they will be proven right
• But as investors, we shouldn't pay heed to these permabears as they are generally wrong

It's Jan. 5, 2021, Jeremy Grantham, founder of the GMO fund, and (I have to laugh) medium to long-term strategy manager, is talking about the biggest bubble since the Great Depression of 1929 in his piece 'Waiting for the Last Dance'.

Jeremy Grantham's Article

The following statement stood out:

"I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000."

Jeremy Grantham's Statement

Now, here is what happened that same year, 2021, after Jeremy's prediction.

• S&P 500: +28.71%
• Equity Growth: +27.60%
• Value Equity: +25.16%
• Mid-Cap Equity: +22.58%.
• Global Equity: +18.54%.
• Small Cap Equity: +14.82%.
• Emerging Equity: -2.54%

In short, not quite the worst bubble in history as he predicted. From then on, he never misses an opportunity to repeat that we are facing the biggest bubble ever.

If I say for three years that the markets will go up, sooner or later, I will be right, thanks to the fact that markets, by definition, alternate between good and bad years.

This gentleman has been predicting absurd collapses for years (the classic 'Permabear'), but what has the well-known financial 'guru' done with his fund?

Here are the returns of his (active) GMO fund against the S&P 500 index over the period between 2012-2021:

• 2012: GMO +10.4% - S&P 500: +13.41%
• 2013: GMO +12.54% - S&P 500: +29.60%
• 2014: GMO +1.31% - S&P 500: +11.39%
• 2015: GMO -4.27% - S&P 500: -0.73%
• 2016: GMO +5.64% - S&P 500: +9.54%
• 2017: GMO +15.73% - S&P 500: +19.42%
• 2018: GMO -7.26% - S&P 500: -6.24%
• 2019: GMO +17.69% - S&P 500: +28.88%
• 2020: GMO +6.14% - S&P 500: +16.26%
• 2021: GMO +7.03% - S&P 500: +26.89%

Average Total Returns

S&P 500 Total Returns

In short, good ol' Jeremy has not beaten the main US stock market index a single time in 10 years.

Sure, in 2022, he could have said, 'I told you so'. But that's expected, given you keep saying the same thing for 10 years.

In the meantime, anyone who went liquid in 2021, fearing the biggest bubble of all time, would have missed out on an average return of 20%. And anyone who listened to him over the last 10 years... well, you do the math!

The moral of this story is that there will always be so many little Jeremys (another Harry Dent phenomenon, I only like the name because it reminds me of the film 'The Dark Knight') out there scaring us daily.

And while they sell books, and get paid for conferences where nobody cares whether your wealth grows or not, you still won't understand what investing is.

I hope I will still be here in another 10 years and come back to do this little piece of analysis to see if good old Jeremy has predicted the next super-bubble.

Disclosure: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such and is in no way intended to encourage the purchase of assets. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.