WEBVTT - Jeremy Grantham on How to Tell If a Bubble Is About to Burst 0:00:02.720 --> 0:00:17.759 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.079 --> 0:00:20.960 Hello and welcome to another episode of the All Thoughts podcast. 0:00:21.079 --> 0:00:22.560 I'm Tracy Alloway. 0:00:22.239 --> 0:00:23.400 And I'm joll Wisenthal. 0:00:23.680 --> 0:00:26.240 Joe, I have a headline for you, go on THEO. 0:00:26.320 --> 0:00:29.040 Is a good day for headlines you brought this June sixteenth. 0:00:29.120 --> 0:00:31.040 You have a lot of headlines you could That's right, 0:00:31.080 --> 0:00:32.280 you could choose from. 0:00:32.040 --> 0:00:35.000 But one in particular. I'm sure you saw this already. 0:00:35.240 --> 0:00:40.600 SpaceX extends gained to seventeen percent, set to overtake Microsoft 0:00:40.720 --> 0:00:41.400 in value. 0:00:41.680 --> 0:00:44.040 I had a feeling I think at some point did 0:00:44.040 --> 0:00:48.239 they also overtake Amazon like all of those Yes, I 0:00:48.280 --> 0:00:50.800 think in the last week. I mean we're traveling the 0:00:50.800 --> 0:00:54.760 week of the SPACEXIPO. They just captivated everyone and day 0:00:54.800 --> 0:00:58.440 after day, and there are there any number of superlt 0:00:58.520 --> 0:01:00.760 you know what Bloomberg would really like super relatives. It's 0:01:00.800 --> 0:01:02.000 like the largest gain. 0:01:01.840 --> 0:01:06.600 Since x, the biggest and more stats than superlatives, right. 0:01:06.400 --> 0:01:09.280 Well, I suppose, but there was also one I saw, 0:01:09.400 --> 0:01:12.600 I guess yesterday. So June fifteenth was the world's five 0:01:12.680 --> 0:01:16.440 hundred richest people collectively added three hundred and sixty six 0:01:16.480 --> 0:01:19.200 billion dollars to their wealth. There is the single biggest. 0:01:19.520 --> 0:01:21.759 The numbers get bigger over time. There are some it's 0:01:21.840 --> 0:01:23.360 some big times for the market, a. 0:01:23.360 --> 0:01:26.440 Nice day for them. But the crazy thing about SpaceX is, Okay, 0:01:26.480 --> 0:01:29.080 you have this company. It's now worth two point seven 0:01:29.160 --> 0:01:33.200 trillion dollars or something on twenty billion dollars of revenue 0:01:33.319 --> 0:01:36.320 from twenty twenty five, and I can't even do you know, 0:01:36.360 --> 0:01:39.319 if we're talking about valuations, you can't even do a 0:01:39.360 --> 0:01:43.560 traditional price earnings ratio because there's no earnings, there's just sales, 0:01:43.840 --> 0:01:46.560 and the price to sales ratio is more than one 0:01:46.640 --> 0:01:47.920 hundred something like that. 0:01:48.320 --> 0:01:51.000 You know, look like, I don't even know where to 0:01:51.040 --> 0:01:53.440 big game. I mean, you've seen this. 0:01:53.400 --> 0:01:54.360 Because its superlative. 0:01:54.440 --> 0:01:57.400 Yeah, true, super I mean the argument that's being made 0:01:57.640 --> 0:02:00.560 is that there's a lot of arguments being made and 0:02:00.680 --> 0:02:03.160 people it's like, oh, it's actually an AI company because 0:02:03.160 --> 0:02:05.960 of all the GPUs and data centers that they've built. 0:02:06.200 --> 0:02:09.080 They really do have, and we've done an episode on this, 0:02:09.360 --> 0:02:13.600 an extraordinarily commanding lead in space and satellites and starlink, 0:02:13.680 --> 0:02:17.120 et cetera. The revenue is what it is, I don't know. 0:02:17.360 --> 0:02:20.440 But also I think it's fair to say things feel 0:02:20.560 --> 0:02:23.959 a little bit speculative. Yeah at the moment, right, you 0:02:24.200 --> 0:02:28.880 see a headline like that, seventeen percent, that's overtaking a 0:02:29.080 --> 0:02:33.440 stallwart of the tech industry in the space of it's 0:02:33.480 --> 0:02:34.640 been less than a week, right. 0:02:34.639 --> 0:02:36.359 Yeah, I mean look, I mean the other thing is, 0:02:36.360 --> 0:02:38.560 look these companies and we're going to get these other 0:02:38.639 --> 0:02:40.920 big IPOs later in the year with open AI and 0:02:40.960 --> 0:02:44.440 Anthropic presumably. I mean, Space has been around for a 0:02:44.520 --> 0:02:49.800 long time. The historically companies came public much earlier, et cetera. 0:02:49.919 --> 0:02:53.000 So obviously it does have twenty two thousand employees. It's 0:02:53.000 --> 0:02:55.280 a big company, but the revenue is what it is, 0:02:55.560 --> 0:02:57.120 and if you're looking at it from a sort of 0:02:57.160 --> 0:03:00.440 like valuation based metric, you would have to say, at 0:03:00.480 --> 0:03:04.680 a very minimum, investors are are you have to be 0:03:04.720 --> 0:03:08.160 banking on very rapid growth in the very short term 0:03:08.240 --> 0:03:10.560 in the coming years to expect good returns here. 0:03:10.520 --> 0:03:13.680 Right, So obviously one of the big talking points. 0:03:13.720 --> 0:03:16.320 Do you know I'm looking at the d S page 0:03:16.320 --> 0:03:19.320 for Space, do you know where it's headquartered? No, actually, 0:03:20.040 --> 0:03:24.000 Star based Texas, So they so they have their own 0:03:24.040 --> 0:03:26.520 town in Texas that they got to name. But that 0:03:26.680 --> 0:03:30.120 is their corporate info. On the des page Star based Texas, Well. 0:03:30.120 --> 0:03:33.600 That's definitely worth two point seven true. Yeah, So all right, 0:03:33.639 --> 0:03:37.200 the big talking point in markets is obviously valuations. All 0:03:37.280 --> 0:03:40.520 of this AI frenzy, is it a bubble? Is it not? 0:03:40.720 --> 0:03:42.400 But even if you think that a lot of this 0:03:42.560 --> 0:03:45.160 is speculative, yeah, my big question is what do you 0:03:45.200 --> 0:03:46.800 actually do at this point? 0:03:47.080 --> 0:03:47.280 Right? 0:03:47.320 --> 0:03:50.680 Because so much of the market has been momentum driven recently, 0:03:51.240 --> 0:03:54.800 AI enthusiasm is pretty much everywhere. So we talk a 0:03:54.800 --> 0:03:58.040 lot about waitings in the indices, the benchmark inducees of 0:03:58.080 --> 0:04:01.920 big tech, but also, as we discussed recently with Torsten 0:04:02.000 --> 0:04:05.040 Slock in his great presentation at our live show, the 0:04:05.080 --> 0:04:08.720 AI factor is basically embedded in pretty much every stock 0:04:08.800 --> 0:04:09.800 at this point in time. 0:04:10.120 --> 0:04:12.560 Look, I'm the way I look at it for my 0:04:12.600 --> 0:04:15.320 own investing in my retirement. Did I very have like 0:04:15.400 --> 0:04:19.440 sort of very boring, normal index based investing. It's like, look, 0:04:19.800 --> 0:04:22.240 I may be missing out, but these are great returns, etcetera. 0:04:22.320 --> 0:04:24.920 I'm not managing other people's money, you know, other people 0:04:24.920 --> 0:04:27.240 like this is luxury, you know what I'm saying. It's 0:04:27.320 --> 0:04:29.320 like I have the luxury of being able to say 0:04:29.360 --> 0:04:31.520 these are fine returns. I'm just getting from the S 0:04:31.520 --> 0:04:35.280 and P or whatever roughly, and that's fine. It's a 0:04:35.320 --> 0:04:37.200 great year. And if like, you know, I'm not all 0:04:37.240 --> 0:04:40.400 in on two X levered Korean memory stocks, but I'm 0:04:40.480 --> 0:04:43.200 still like, these are great returns. Had I been, had 0:04:43.240 --> 0:04:45.719 someone been paying me to manage their money, I don't 0:04:45.720 --> 0:04:47.880 know if they'd be happy to get market returns right now. 0:04:47.960 --> 0:04:50.400 Yeah, that's right. So this poses a bunch of interesting 0:04:50.480 --> 0:04:53.240 questions obviously, Yeah, the big one being are we in 0:04:53.279 --> 0:04:55.080 a bubble or not? And then I guess the next 0:04:55.080 --> 0:04:56.760 biggest one being well, what do you actually do? 0:04:56.839 --> 0:04:57.039 Yeah? 0:04:57.080 --> 0:04:58.479 How do you stay saying that's right? 0:04:58.800 --> 0:05:02.359 How do you stay safe in a giant market bubble? 0:05:02.440 --> 0:05:04.120 And we do, in fact have the perfect guests, someone 0:05:04.120 --> 0:05:06.480 who has managed to do that over the years. More 0:05:06.560 --> 0:05:10.000 or less, I think we're gonna be speaking with Jeremy Grantham. 0:05:10.080 --> 0:05:14.240 He is the co founder and long term strategist at GMO, 0:05:14.360 --> 0:05:16.640 as well as the author of the new memoir The 0:05:16.640 --> 0:05:19.760 Making of a Perma Bear, The Perils of Long Term 0:05:19.880 --> 0:05:24.080 Investing in a Short term World, and famously the Caller 0:05:24.279 --> 0:05:29.880 the accurate caller of many previous yes, including dot com, 0:05:29.880 --> 0:05:32.760 which is the parallel that everyone keeps using. So Jeremy, 0:05:32.839 --> 0:05:34.840 thank you so much for coming on odd lots. 0:05:35.440 --> 0:05:37.120 It's a pleasure. Thank you for having me. 0:05:37.720 --> 0:05:41.720 So what do you recommend investors too at this point 0:05:41.800 --> 0:05:44.720 in time, because it seems like there's no escape from 0:05:45.000 --> 0:05:46.440 AI enthusiasm. 0:05:46.560 --> 0:05:52.200 To put it mildly, well, my simple advice is usually 0:05:53.240 --> 0:05:56.840 try and avoid the high. Check the numbers and one 0:05:56.880 --> 0:06:00.560 hundred times sales. Pretty well, that's the job for you. 0:06:01.920 --> 0:06:05.640 It's easy for kind of market historians to be having 0:06:05.680 --> 0:06:11.080 a good time. These are extraordinary times. It's seldom been 0:06:11.160 --> 0:06:14.800 more interesting. I'm thrilled to be alive when all the 0:06:16.000 --> 0:06:19.160 major issues that I have spent my life studying and 0:06:19.240 --> 0:06:22.160 particularly the last fifteen years are coming to a head 0:06:23.120 --> 0:06:27.960 basically at the same time. And to find that being 0:06:28.040 --> 0:06:32.279 met by the highest priced market in history, give or take, 0:06:33.200 --> 0:06:38.839 is extraordinary. And I think in fifty years market historians 0:06:38.880 --> 0:06:44.160 will look back and talk in awe of SpaceX and 0:06:44.920 --> 0:06:50.680 read as a kind of novel slash joke its perspectives, 0:06:51.440 --> 0:06:54.080 and compare it with the stories they tell about the 0:06:54.080 --> 0:06:57.719 south Sea Bubble. You know, an undertaking of such enormous 0:06:57.760 --> 0:07:01.120 value that it cannot cannot be at this time revealed 0:07:02.920 --> 0:07:05.240 it scoped up a lot of money and ran off 0:07:05.279 --> 0:07:07.120 with it, and they deserved it. 0:07:07.480 --> 0:07:10.240 The naming of your book the making of a Perma Bear? 0:07:10.880 --> 0:07:13.720 What is like when I read that title? Should I 0:07:13.760 --> 0:07:16.920 have perma bear in air quotes? As in like people 0:07:17.040 --> 0:07:19.200 perceive you to be a perma bear? 0:07:20.080 --> 0:07:21.720 Or do you voted quotes? 0:07:22.440 --> 0:07:28.400 And it interesting? Yeah, because because a I don't you know, 0:07:28.480 --> 0:07:32.560 I associate you with like warning about the markets can 0:07:32.880 --> 0:07:36.640 get over their skis and understanding market history, et cetera. 0:07:37.080 --> 0:07:40.560 On the other hand, I look at GMO's holdings and 0:07:40.640 --> 0:07:43.720 positioning and I see, you know, I do not see 0:07:43.800 --> 0:07:48.480 funds that are just overwhelmingly in treasuries, in gold and 0:07:48.800 --> 0:07:52.960 safe haven assets. I see ownership of Meta and Microsoft. 0:07:52.960 --> 0:07:56.600 This does not look like the portfolio of someone who 0:07:57.160 --> 0:07:59.560 I would think of as a quote perma bear unquote. 0:08:00.520 --> 0:08:02.720 When I was seventy, I figured it was time to 0:08:02.840 --> 0:08:06.520 leave my colleagues in charge of all the day to 0:08:06.600 --> 0:08:10.280 day decisions. I have nothing to do with the portfolio today. 0:08:10.360 --> 0:08:15.040 My only job is to study long term existential threats 0:08:15.360 --> 0:08:19.880 to the market and society, and that includes the making 0:08:19.920 --> 0:08:22.280 and breaking of the great bubbles. Which is fine because 0:08:22.320 --> 0:08:26.200 I have always, for fifty years at least, considered the 0:08:26.240 --> 0:08:28.120 making and breaking of the great bubbles to be the 0:08:28.160 --> 0:08:30.880 only thing that really matters. The rest of the time, 0:08:31.040 --> 0:08:33.640 show up for work, keep your nose clean. You're doing fine. 0:08:34.679 --> 0:08:39.000 But the forming of these spectacular bubbles and their breaking 0:08:39.480 --> 0:08:41.559 really separates the men from the boys. 0:08:42.200 --> 0:08:45.000 So you touch on this in the book. But when 0:08:45.240 --> 0:08:47.960 we're in the midst of a major bubble and people 0:08:47.960 --> 0:08:53.480 are seeing crazy returns like seventeen percent on SpaceX, what 0:08:53.600 --> 0:08:57.640 do you tell clients they're missing out on these huge gains. 0:08:57.720 --> 0:09:00.800 I assume you're encouraging them to be patient, to wait 0:09:00.880 --> 0:09:04.319 for that mean reversion. But how do you actually handle 0:09:04.360 --> 0:09:08.320 the pressure of having a customer, a client who is 0:09:08.520 --> 0:09:12.160 under pressure to at a minimum meet their benchmark with 0:09:12.240 --> 0:09:13.080 great difficulty. 0:09:13.480 --> 0:09:17.480 It's always been difficult dealing with clients in a major 0:09:17.520 --> 0:09:20.880 ball market. Luckily, we've had quite a bit of experience 0:09:20.960 --> 0:09:25.560 because since Greenspan, we've gone from one overpriced market to 0:09:25.640 --> 0:09:29.560 the next, starting with the tech bubble and then the 0:09:29.559 --> 0:09:32.800 housing bubble, and then in the sense the end of 0:09:32.800 --> 0:09:37.839 twenty one was a spectacular overpriced market and now this 0:09:37.960 --> 0:09:41.440 So we've had a lot of experience and we were 0:09:41.800 --> 0:09:44.200 more careful at handling the clients now than I think 0:09:44.280 --> 0:09:47.959 we were in the Tech Book, where we famously lost 0:09:48.400 --> 0:09:51.400 half our book of business in two and a quarter years. 0:09:51.559 --> 0:09:53.840 Actually, what does that look like in practice? And I 0:09:53.920 --> 0:09:57.040 understand that you're not active day to day in the 0:09:57.080 --> 0:10:01.040 security selection, but obviously people who work for you are, 0:10:01.080 --> 0:10:03.920 and they're very active, and obviously in the client handling. 0:10:03.960 --> 0:10:06.440 What does that actually look like in practice? Good client 0:10:06.520 --> 0:10:08.440 management at any firm. 0:10:08.800 --> 0:10:12.120 In our case, being as honest as you can be, 0:10:13.400 --> 0:10:17.840 lay the facts on the table, make them as clear 0:10:17.880 --> 0:10:22.559 as you possibly can, try and take out one hundred 0:10:22.600 --> 0:10:26.600 percent of the hype, and kind of engage with your 0:10:26.640 --> 0:10:30.680 client so that they understand exactly how you see the 0:10:30.720 --> 0:10:33.800 market working, why it does this, why it does that, 0:10:34.000 --> 0:10:40.920 how it's in general price. And that's a long, continuous job, 0:10:41.600 --> 0:10:44.160 and it keeps going in the bull markets and the 0:10:44.160 --> 0:10:48.239 band markets. What changes really is the client's level of excitement. 0:10:49.240 --> 0:10:54.120 They become careful and miserable for a while, and they're 0:10:54.480 --> 0:10:57.840 excited and jumping up and down for a while. But 0:10:57.960 --> 0:11:01.360 our process of trying to deliver the facts as we 0:11:01.480 --> 0:11:03.160 see them doesn't really change much. 0:11:04.120 --> 0:11:06.880 So I think a lot of people would probably agree 0:11:06.880 --> 0:11:10.600 that markets feel a little frothy at the moment, But 0:11:10.760 --> 0:11:13.440 I think there's also a mentality. Again, it goes back 0:11:13.440 --> 0:11:17.360 to this momentum factor that's dominated in recent years. But 0:11:17.600 --> 0:11:19.880 I think there's a mentality that everyone just assumes they're 0:11:19.880 --> 0:11:22.760 going to be able to get out before everyone else. 0:11:23.120 --> 0:11:25.160 Everyone's going to head for the exits at the same time, 0:11:25.200 --> 0:11:28.120 so you enjoy the gains and then hopefully you're slightly 0:11:28.160 --> 0:11:31.120 smarter than everyone else and you manage to save yourself 0:11:31.200 --> 0:11:34.280 before the bubble actually bursts. How do you go about 0:11:34.679 --> 0:11:39.640 thinking about timing of the bursting of bubbles? What are 0:11:39.679 --> 0:11:42.680 the signs that you actually watch out for in terms 0:11:42.720 --> 0:11:45.160 of when everyone is heading for the exits all at once. 0:11:46.960 --> 0:11:47.320 Wow. 0:11:48.000 --> 0:11:52.040 I have a few rules that have worked more often 0:11:52.080 --> 0:11:55.719 than not. The one that's most interesting to me has 0:11:55.760 --> 0:12:01.400 only flashed four times since nineteen twenty five, and that 0:12:01.559 --> 0:12:06.760 is in the early phases of the bubble. That is, 0:12:06.800 --> 0:12:10.040 we define a bubble as a rare two sigma event 0:12:10.720 --> 0:12:14.360 and based on the price only and when it breaks 0:12:14.400 --> 0:12:17.480 through that. Let's assume nineteen twenty eight, you have a 0:12:17.640 --> 0:12:20.520 huge move and the stocks that lead it for going 0:12:20.600 --> 0:12:24.040 up sixty eighty percent for the year, and then in 0:12:24.120 --> 0:12:29.040 nineteen twenty nine, the junkie flyers start to go down. 0:12:29.360 --> 0:12:32.640 It's not that they underperform a rising market. The market 0:12:32.640 --> 0:12:35.559 goes up thirty five percent to the peak in twenty 0:12:36.000 --> 0:12:40.200 in October, they can't even get the sign right. The 0:12:40.240 --> 0:12:45.760 previous year's leaders, the spectacular movers, start to decline and 0:12:45.800 --> 0:12:49.080 they spent the whole of twenty nine going down. And 0:12:49.120 --> 0:12:52.400 by the time the market broke, the S and P 0:12:52.559 --> 0:12:57.160 Low Priced Index, which regrettably was discontinued years ago, was 0:12:57.200 --> 0:13:01.440 down almost forty percent. Priced Index were a bunch of 0:13:01.480 --> 0:13:06.800 fallen angels with enormous volatility, very highbatis and they had 0:13:06.800 --> 0:13:10.000 had his spectacle in nineteen twenty eight, and they started 0:13:10.040 --> 0:13:15.719 to decline. Why is that? I have a theory that 0:13:15.720 --> 0:13:23.040 this is relates to mister Prince's unusually honest answer, why 0:13:23.120 --> 0:13:25.040 is he still in the bull market? As long as 0:13:25.040 --> 0:13:27.920 the music's playing, I had to keep done, and that, 0:13:28.040 --> 0:13:30.480 of course is the name of that game. But he 0:13:30.520 --> 0:13:33.960 doesn't have to dance with Puma Tech. Puma Tech was 0:13:34.000 --> 0:13:38.920 the most advanced spec in ninety nine, which was a 0:13:38.960 --> 0:13:40.880 hell of a good year to be the most advanced 0:13:40.880 --> 0:13:43.560 dock and you don't have to go off the cliff 0:13:44.200 --> 0:13:48.760 in Puma Tech. You go off the cliff in Coca Cola. 0:13:48.960 --> 0:13:52.160 That's the ideal, and that's exactly what happened in nineteen 0:13:52.200 --> 0:13:55.880 twenty nine. People in that case actually Coca Cola. They 0:13:56.000 --> 0:13:59.760 gravitated to the Coca Colas and the radios and away 0:13:59.760 --> 0:14:02.559 from the junk, and the junk started to decline. That's 0:14:02.600 --> 0:14:07.640 an incredible signal, the greatest prime primal scream from the 0:14:07.679 --> 0:14:11.520 stock market ever. And nothing like that happens again. You 0:14:11.640 --> 0:14:15.040 have underperformance of high flyers, but you never have them 0:14:15.080 --> 0:14:19.280 go down in the decently rising market until drum roll 0:14:19.640 --> 0:14:22.480 nineteen seventy two. The top of the nifty to fifty, 0:14:23.240 --> 0:14:27.440 the SMP goes up seventeen, the average SMP stock goes 0:14:27.480 --> 0:14:31.320 down seventeen, so I can remember the numbers forever. And 0:14:31.360 --> 0:14:34.960 then we have the biggest bear market since the Great Depression. 0:14:35.040 --> 0:14:39.600 That was a truly miserable bear market seventy three seventy four, 0:14:40.080 --> 0:14:43.880 whether you had small cap, large cap, quality, junk, everything 0:14:43.960 --> 0:14:47.080 went down fifty percent, and then when adjusted for inflation 0:14:48.040 --> 0:14:52.480 closer to sixty five. An absolute monster. And nothing like 0:14:52.520 --> 0:14:57.080 it happens again until two thousand. In the year two thousand, 0:14:57.240 --> 0:15:01.480 you may remember, the growth stocks peaked horrific in February, 0:15:02.120 --> 0:15:05.080 the rest of the SMP did not. The rest of 0:15:05.120 --> 0:15:08.600 the SMP rose about fifteen percent, so you had a 0:15:08.640 --> 0:15:13.840 coequal high in October, but the growth stocks for down 0:15:13.920 --> 0:15:17.440 forty percent, having been as low as fifty percent by then, 0:15:17.520 --> 0:15:22.000 they rallied a little, and back in September you had 0:15:22.040 --> 0:15:25.440 the SMP as high as it was in March of 0:15:25.480 --> 0:15:29.840 two thousand. Just amazing deviation between the growth stocks who'd 0:15:29.880 --> 0:15:34.040 been making spectacular running in ninety eight, ninety nine and 0:15:34.120 --> 0:15:37.520 early two thousand and the rest of the market that 0:15:37.640 --> 0:15:42.920 continued up, and then you had very sharp break the 0:15:43.080 --> 0:15:48.400 end of two thousand, a steady break in two thousand 0:15:48.480 --> 0:15:51.240 and one, and then to rub it in a miserable 0:15:51.320 --> 0:15:55.120 minus twenty two percent in two thousand and two, and 0:15:55.240 --> 0:16:02.640 nothing like that happens again until twenty twenty one. In 0:16:02.680 --> 0:16:06.160 twenty twenty one, you may remember the mean stocks peeled 0:16:06.160 --> 0:16:09.280 off by the middle of the year. Kathy Wood and 0:16:09.320 --> 0:16:12.480 her portfolio were going down. By the end of the year, 0:16:12.760 --> 0:16:15.200 they were off thirty five forty percent from their peak. 0:16:16.040 --> 0:16:19.520 And yet during that same six months, the s and 0:16:19.560 --> 0:16:23.680 p powered ahead. It's really quite remarkable when they get 0:16:23.680 --> 0:16:29.040 the sign wrong. And unfortunately that I had an adventure 0:16:29.080 --> 0:16:32.200 with quantum Scape. Quantum Scape turned out to be a 0:16:32.280 --> 0:16:35.320 meme start without my knowing it, because I had a 0:16:35.400 --> 0:16:38.880 huge position personally. And the reason I had a huge 0:16:38.920 --> 0:16:42.320 position is that I was offered an opportunity to invest 0:16:42.360 --> 0:16:45.120 several years earlier on an all or nothing basis. I 0:16:45.120 --> 0:16:48.200 took this big position or I had nothing. So I 0:16:48.240 --> 0:16:50.080 took a deep breath, and it was much too big 0:16:50.120 --> 0:16:53.000 for our foundation, which we have for the protection of 0:16:53.040 --> 0:16:56.520 the environment, the Grantham family, and so I had to 0:16:56.520 --> 0:16:59.600 own it personally. So it was the only stock that 0:16:59.680 --> 0:17:03.520 I It was a very big chunk and it came 0:17:03.720 --> 0:17:08.000 as a spac at four times my investment, better than 0:17:08.000 --> 0:17:10.000 a kick in the pants ten dollars a share, up 0:17:10.040 --> 0:17:12.720 from two and a half, and within three months it 0:17:12.800 --> 0:17:14.960 was one hundred and thirty one and let me should 0:17:14.960 --> 0:17:17.399 talk about one hundred and thirty one at the end 0:17:17.440 --> 0:17:20.720 of twenty twenty. That was the very first start to 0:17:20.840 --> 0:17:24.440 peek out at over one hundred and thirty was bigger 0:17:24.480 --> 0:17:28.920 than General Motives, and it was a battery research lab. 0:17:29.640 --> 0:17:33.280 They were going to design with any luck a solid 0:17:33.320 --> 0:17:36.800 state battery, and they still may, but they still have 0:17:37.000 --> 0:17:40.800 not got a battery on the market. So this wasn't 0:17:41.240 --> 0:17:46.560 like SpaceX. This had no sales forget no profits, and 0:17:46.640 --> 0:17:50.040 were selling for more than general motives. Actually, I think 0:17:50.080 --> 0:17:54.080 that is more speculative SpaceX, which I think is a 0:17:54.480 --> 0:17:56.720 very very high hurdle. 0:18:12.720 --> 0:18:15.280 I'm glad you brought back twenty twenty one because that 0:18:15.400 --> 0:18:18.600 was a weird year, wild time in a way that 0:18:18.760 --> 0:18:22.480 really was See. I would argue the twenty twenty one 0:18:22.640 --> 0:18:26.159 was actually much more wild than right now because of 0:18:26.240 --> 0:18:30.119 the proliferation of quantum scapes, which was one of many 0:18:30.280 --> 0:18:32.720 stories that you could tell. You could go back to 0:18:33.160 --> 0:18:37.119 the Rivian valuation at its peak or numerous others escape 0:18:37.119 --> 0:18:39.080 it is much okay, okay, all right, all right, fine, 0:18:39.240 --> 0:18:42.720 but let's talk about AI for a second, because obviously 0:18:42.760 --> 0:18:45.720 we reached back towards memories of the dot com bubble 0:18:45.760 --> 0:18:48.040 or twenty twenty one. But I'm looking at a chart 0:18:48.119 --> 0:18:52.960 on my terminal right now of Nvidia revenue. So in 0:18:53.040 --> 0:18:57.960 twenty nineteen, in Vidia had revenue of eleven point seven billion, 0:18:58.680 --> 0:19:01.959 and in twenty twenty five it had revenue of one 0:19:02.040 --> 0:19:05.960 hundred and thirty billion, so the revenue has gone up therefore, 0:19:06.160 --> 0:19:09.879 I think by over ten x in six years. We 0:19:10.000 --> 0:19:13.760 talked about and everyone said, oh, market, the very high valuations. 0:19:14.320 --> 0:19:17.080 Can't we say that the investor in Video in twenty 0:19:17.200 --> 0:19:21.919 nineteen was getting the mother of all deep value investing, 0:19:22.560 --> 0:19:25.760 given what we now know in retrospect about what its 0:19:25.760 --> 0:19:28.560 earnings were about to do well. 0:19:28.600 --> 0:19:31.680 Obviously, if you're clad, Voyant was the sure sure a 0:19:31.800 --> 0:19:37.680 deep value opportunity. And Video obviously a brilliant company, and AI, 0:19:37.800 --> 0:19:42.399 by the way, is a spectacular important development. But and 0:19:42.560 --> 0:19:46.080 Video the biggest piece of luck I think I can 0:19:46.119 --> 0:19:48.680 think of in the last thirty years. You have all 0:19:48.720 --> 0:19:52.920 your money and chips made for playing games, and suddenly 0:19:52.960 --> 0:19:57.560 it turns out that that is absolutely the right design 0:19:57.760 --> 0:20:02.000 for AI, and you have such running start that it 0:20:02.040 --> 0:20:05.399 may take you tell me five years, ten years. It 0:20:05.440 --> 0:20:08.320 doesn't seem like the ultimate mode. It seems like the 0:20:08.400 --> 0:20:13.120 ultimate head start in a game where a head start 0:20:13.240 --> 0:20:16.399 is worth a ton of dough. It is worth a 0:20:16.480 --> 0:20:20.639 tent tuple in your sales, but it's only a head start. 0:20:21.000 --> 0:20:26.040 Other people Google gearing up to be competitors in the 0:20:26.040 --> 0:20:29.199 next decade of course, there will be plenty of competition, 0:20:29.600 --> 0:20:34.480 maybe even technologies that end run the current type of chip. 0:20:34.920 --> 0:20:37.680 These things happen, History is full of them. 0:20:38.640 --> 0:20:41.000 Can let me just push on that again. So I 0:20:41.080 --> 0:20:44.359 take your point about in video having this incredible mode 0:20:44.400 --> 0:20:48.720 from maybe arguably stumbled into the technology backwards because they 0:20:48.760 --> 0:20:52.359 were obviously in video games before. But like I'm looking at, 0:20:52.400 --> 0:20:56.520 say even a Microsoft twenty twenty annual revenue of one 0:20:56.560 --> 0:20:59.919 hundred and forty three billion twenty twenty five annual revenue 0:20:59.920 --> 0:21:01.960 of two hundred and eighty billion. So we see the 0:21:02.000 --> 0:21:05.679 biggest companies in the world doubling real business in the 0:21:05.720 --> 0:21:08.399 span of five years, which does not feel to me 0:21:08.520 --> 0:21:11.800 anything like what we were seeing. And I have fond 0:21:11.800 --> 0:21:14.840 memories of nineteen ninety nine myself. That's when I got 0:21:14.880 --> 0:21:19.359 personally interested in markets. These are gigantic businesses still putting 0:21:19.440 --> 0:21:23.440 up huge growth numbers that lap Wall Street forecast year 0:21:23.440 --> 0:21:23.960 after year. 0:21:25.600 --> 0:21:30.840 Yeah. And for the record, when Microsoft first appeared in 0:21:30.840 --> 0:21:34.920 a tradable portfolio, yeah, for GMO, it was in our 0:21:35.080 --> 0:21:39.280 value stream. We had a value stream and a momentum stream, 0:21:40.160 --> 0:21:43.840 and we only bought the most attractive ten percent, and 0:21:43.880 --> 0:21:47.760 we did that each month for twelve months, so we 0:21:47.840 --> 0:21:51.320 had twelve little portfolios, each one the best ten percent 0:21:51.800 --> 0:21:55.720 for each month of the year, and Microsoft entered the 0:21:55.840 --> 0:22:03.000 cheapest value decile and stayed there until July of ninety nine. 0:22:03.680 --> 0:22:07.840 And that's because our value model looked to add long 0:22:07.920 --> 0:22:11.560 term future earnings and dividends projected as best we could, 0:22:11.640 --> 0:22:15.040 and we did that through projecting return on equity, and 0:22:15.119 --> 0:22:18.200 we did that by looking at how return on equity 0:22:18.680 --> 0:22:23.120 regressed to the mean and which factors affected the rate. 0:22:23.800 --> 0:22:28.800 Certain factors slowed it down. Market domination, price setting that 0:22:28.880 --> 0:22:33.359 you could prove slowed it down, way way down, and 0:22:33.480 --> 0:22:38.760 Microsoft was the perfect example of this. It had very, 0:22:39.040 --> 0:22:44.359 very low volatility. It was clearly overwhelmingly the price setter, 0:22:45.359 --> 0:22:49.000 and consequently our model said it was worth nine times book, 0:22:49.160 --> 0:22:54.199 not seven times book, but it was selling it. So 0:22:54.760 --> 0:22:56.720 if you have a good value model, you can buy 0:22:56.800 --> 0:22:59.760 these things. You can see them on occasions coming along. 0:23:00.200 --> 0:23:04.760 And yes, it's done spectacularly well and has had then 0:23:04.920 --> 0:23:11.320 particularly a much better mode to me than Nvidia has today. 0:23:12.680 --> 0:23:16.320 But if you will allow me a minute here, if 0:23:16.320 --> 0:23:19.560 you look at the NAG seven, you look backwards in 0:23:19.680 --> 0:23:23.520 history and you can say with a pretty clear conscience. 0:23:23.600 --> 0:23:30.240 Each one dominates their seven different niches. They have near 0:23:30.320 --> 0:23:35.040 monopolies on a global basis. Even Tesla has a jump start, 0:23:35.840 --> 0:23:40.639 the biggest and the best for a long time in evs. 0:23:41.320 --> 0:23:48.560 And you have Amazon beginning to dominate retail, Google Research, etcetera, etcetera. 0:23:49.680 --> 0:23:57.040 Seven decent monopolies dominating the world Justice Department, et cetera. 0:23:57.440 --> 0:24:01.480 Perfectly sound asleep. No one is interested in pulling a 0:24:01.920 --> 0:24:05.399 Teddy Roosevelt. They're not going to jump in and slash 0:24:05.440 --> 0:24:08.600 and burn and divide eggs on into seven different pieces. 0:24:09.640 --> 0:24:14.360 They're letting these things grow and fix and set their 0:24:14.400 --> 0:24:18.600 pricing and make tons and tons of money. And then 0:24:18.640 --> 0:24:22.960 you look forward starting from today, does it look anything 0:24:23.080 --> 0:24:28.320 like that? Doesn't it look like seven companies deciding they're 0:24:28.359 --> 0:24:32.479 all in the same market AI that moving the most 0:24:32.520 --> 0:24:36.320 powerfully with the greatest investment is dominant. Are they not 0:24:36.520 --> 0:24:39.920 seen here beating their chests and saying, my two hundred 0:24:39.960 --> 0:24:43.120 billion in investment in a single year is bigger than 0:24:43.119 --> 0:24:47.119