Waiting for the Last Dance
The Hazards of Asset Allocation in a Late-stage Major Bubble
Jeremy Grantham
January 5, 2021
Download the complete letter Waiting for the Last Dance by Jeremy Grantham here.
The long, long bull market since 2009 has finally matured into a full-fledged epic bubble. Featuring explosive overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, 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.
These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle. For positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part. Every career incentive in the industry and every fault of individual human psychology will work toward sucking investors in.
But this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and portfolios. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives. Speaking as an old student and historian of markets, it is intellectually exciting and terrifying at the same time. It is a privilege to ride through a market like this one more time.
Nothing in investing perfectly repeats. Certainly not investment bubbles. Each form of irrational exuberance is different; we are just looking for what you might call spiritual similarities. Even now, I know that this market can soar upwards for a few more weeks or even months – it feels like we could be anywhere between July 1999 and February 2000. Which is to say it is entitled to break any day, having checked all the boxes, but could keep roaring upwards for a few months longer.
Download the complete letter Waiting for the Last Dance by Jeremy Grantham here.