Episode Overview

Podcast: Merryn Talks Money
Host: Merryn Somerset Webb (Bloomberg)
Guest: Jeremy Grantham (Co-founder of GMO, renowned investor, "perma-bear")
Date: January 19, 2026
Episode Title: GMO's Jeremy Grantham on buying start-ups, an AI bubble and why the small-cap premium is a myth

This episode features a candid, wide-ranging conversation between host Merryn Somerset Webb and legendary investor Jeremy Grantham. The discussion revolves around Grantham’s celebrated contrarianism, bubbles past and present (especially in AI), debunking the small-cap premium, the unique value of quality and value investing, monopoly capitalism, mean reversion, the challenges and virtues of venture capital, and his thoughts on the future of investment and society. Grantham pulls from decades of experience and recent analysis, tying history’s market manias to current conditions.

Key Discussion Points and Insights

1. The Perpetual Contrarian & Lessons from Bubbles Past

Jeremy Grantham’s Reputation and Book

• Grantham reiterates his fame as a "perma-bear" and market bubble spotter, defending his approach as grounded in data and probability, not pessimism.
• His book: The Making of a Perma Bear. The Perils of Long Term Investing in a Short Term World gathers the deep, often cyclical lessons he’s lived through since the 1970s.
  • Quote (02:26): "Jeremy has been one of the most distinctive and the most well known contrarian voices in global investing... Is he really a perma bear or is he not? His new book rather suggests he is." — Merryn Somerset Webb

The Laws of Bubbles and Mean Reversion

• Grantham holds that all bubbles revert to the mean, but timing is impossible to predict, likening it to "throwing up feathers in a storm"—they always fall, you just don't know when or where.

  • Quote (11:12): "You throw up feathers in a storm and they will eventually hit the ground. You can't say when, you can't say where, but one thing you can know for certain is they will hit the ground." — Merryn Somerset Webb

• He details famous bubbles—Japanese stocks and real estate, dot-coms, railroads—showing how consensus bullishness enables excess, and how even the best ideas get overdone and crash.

AI as Today’s Bubble

• Grantham compares AI fervor to past transformative bubbles, insisting a bust is nearly inevitable given the widespread, unquestioning euphoria.
  • Quote (01:31 and 30:08): "A lot of people get rich in the stock market for the time being… The higher the market, the lower the returns will be. And I think the probabilities that AI will not bust are slim to none. It meets every condition of the railroads and the Internet." — Jeremy Grantham

Timestamps

• [01:31] Grantham’s take on current bubbles, especially AI
• [10:27] The law of mean reversion
• [27:05] Is this a quality bubble like the ’Nifty Fifty’ or dot-coms?
• [30:08] Bubble mechanics and AI as the "most consequential" idea

2. Investment Factors: Value, Momentum, and the Myth of the Small-Cap Premium

Value and Quality Outperform

• Grantham restates his thesis: Historically, quality and value investing are the only consistent winners. Most supposed “risk premiums” are illusory except for a persistent 'free lunch' in high-quality stocks.
  • Quote (03:52): "AAA stocks actually have slightly outperformed the rest of the market... And that's always been a dagger to the heart of the efficient market hypothesis." — Jeremy Grantham

Momentum’s Puzzles

• Momentum worked superbly for 20 years but has faded as more people chased it.
  • Quote (05:05): "If from the day he wrote that book, you bought the stocks that advanced the highest 10% the year before and you held them for the following year, you made three or four points a year for the next 20 years." — Jeremy Grantham

Small-Cap Premium Debunked

• The "small-cap premium" is mostly a rebalancing effect caused by constant reshuffling of the index; excluding this, there’s no evidence small caps outperform, especially once accounting for their lower quality.
  • Quote (06:20): "We based our entire firm at Battery march on small cap, and it did brilliantly well... But small cap is very complicated because how do you define it? ...If you take that out, there's no evidence that small cap works." — Jeremy Grantham

Timestamps

• [03:26] The only things that work: value and quality
• [06:20] The rebalancing effect behind the small-cap premium

3. Monopoly Capitalism, Profit Margins, and a Changing Market Structure

Rise of Monopolies/Oligopolies

• Grantham laments how growing concentration (post-2000) has tilted the playing field to favor large corporations, boosting profit margins but likely leading to slower GDP growth and stifled competition.

  • Quote (08:26): "Monopolies are bad for GDP and good for corporate profits... The era of the rich and powerful and the big corporations having all the power and making a lot more money..." — Jeremy Grantham

• This tilting “prevents” normal mean reversion in profits and creates a market increasingly dominated by a handful of companies (Mag 7, S&P heavyweights).

“Canary in the Hurricane”

• The current anomaly: Profit margins remain elevated, with no mean reversion thanks to entrenched monopolies and political complacency.
  • Quote (30:08): "We're watching these profit margins go higher and higher and higher... And the more influence they have, the higher the profit margins go." — Jeremy Grantham

4. Lessons from History: Career/Benchmark Risk & Institutional Blindness

Career Risk Drives Herd Thinking

• Grantham recalls his famous 1990s debates: Even professional investors privately recognized the bubble but stayed bullish out of self-preservation—echoing Keynes’s famous dictum on “group” error and job risk.

  • Quote (16:42): "It's not a business strategy to be a bear in a bubble... The last thing you want to do is something where you run the risk of being wrong on your own. If you do that… you'll get fired." — Jeremy Grantham

• Institutions and authorities are systemically wrong at turning points because no one will stick their neck out first.

Individual Investors’ Secret Weapon

• Ordinary investors, free from career and benchmark pressures, can step aside from bubbles more nimbly — as long as they tune out consensus “propaganda.”
  • Quote (18:52): "The individuals have a huge advantage. Lack of career risk. They could really nail it. Wait until it's obvious that there is a bubble..." — Jeremy Grantham

5. What To Do Now: Portfolio Advice, Precious Metals, and Venture Capital

Tactical Outlook (as of 2026):

• International stocks and value remain attractive vs. expensive US equities, but less so than a year ago following strong rallies.

  • Quote (33:48): "It's not as attractive... but compared to the U.S. they're so brilliant. I would stand my ground indeed, in my family accounts. That's precisely what I'm doing." — Jeremy Grantham

• Precious metals: Grantham is self-deprecating about his history with gold and silver, dismissing them as non-investments compared to productive enterprises.

  • Quote (34:51): "I'm afraid I'm psychologically crippled now on precious metals. I have done so badly that I think I should leave them alone. They have no dividend and you can't eat them and so on."

Venture Capital as the Future

• Grantham’s “obsession” is now mission-driven venture capital, especially in climate and green energy tech. He views VC as the only form of investing that truly adds to GDP and drives societal progress—not just shifting ownership.

  • Quote (42:58): "When you do a venture capital project, you are facilitating the best in the world structure for getting masses of new ideas into business."

• He strongly recommends young people build practical skills, consider engineering, sustainable farming, and participate in solving urgent challenges through business and technology.

Timestamps

• [33:48] Portfolio positioning: international value vs the US
• [34:51] On precious metals and their appeal (or lack thereof)
• [42:33] Why Grantham prefers venture capital now

6. Monetary Policy, Inequality and “Turning Points”

Fed Critique

• Grantham is scathing of past Fed chairs (Greenspan, Bernanke) for enabling bubbles through inattention and misunderstanding; only marginally less critical of the current leadership.
• He says authorities are habitually late or wrong at big inflection points due to structural bias and career incentives.
  • Quote (36:20): "How is it possible for the Fed boss, with his statisticians, his advisors, right at the peak of a three sigma outlier, to say that the business is normal? Please explain. It's incomprehensibly stupid..."

Societal Risks from Inequality

• The concentration of gains among the richest, both individually and via corporate power, risks undermining the entire economic structure—e.g., if the bottom half can’t buy cars, the system breaks down.
  • Quote (40:51): "There are many ways to have your share of profits drop and it may be that you can squeeze the bottom half so much that it weakens the structure of GDP…"

Timestamps

• [36:16] Fed and central bank failings
• [40:15] Structural risks in society and markets

Notable and Memorable Quotes

• On AI as a Bubble
  "[AI] meets every condition of the railroads and the Internet. It's a powerful idea that's attracted everybody's money. No one has any doubts... And this is perhaps the most consequential idea. Even if it kills us all, that doesn't matter since we're all dead." — Jeremy Grantham [01:31, 30:08]

• On Quality Investing
  "AAA stocks actually have slightly outperformed the rest of the market... And that's always been a dagger to the heart of the efficient market hypothesis." — Jeremy Grantham [03:52]

• On the Small Cap Premium
  "If you take that out (the reshuffling effect), there's no evidence that small cap works." — Jeremy Grantham [06:20]

• On Mean Reversion
  "You throw up feathers in a storm and they will eventually hit the ground. You can't say when, you can't say where, but one thing you can know for certain is they will hit the ground." — Merryn Somerset Webb [10:27]

• On Institutional/career risk
  "It's not a business strategy to be a bear in a bubble... The last thing you want to do is something where you run the risk of being wrong on your own..." — Jeremy Grantham [16:42]

• On Venture Capital
  "When you do a venture capital project, you are facilitating the best in the world structure for getting masses of new ideas into business." — Jeremy Grantham [42:58]

• On Investing Careers
  "I actually think that investment management is something of a trivial industry... but certainly we need nearly infinite green energy. That's the biggest one of all, I think." — Jeremy Grantham (paraphrased) [45:47-47:08]

Final Takeaways

• Bubbles always end, but timing is impossible.
• Most risk premiums are overstated; value and quality win in the long run.
• AI is the new transformative bubble, destined for a painful reckoning before its eventual triumph.
• Monopolies and growing inequalities now define US markets, boosting profits but threatening social and economic stability.
• Individual investors, free from institutional risk, actually have a critical advantage—if they’re brave enough to use it.
• Venture capital is, in Grantham’s eyes, the highest calling for capital—it innovates, creates, and can tackle the greatest challenges.
• If you’re young: Get practical skills and focus your career on solutions, not speculation.

Key Segment Timestamps

• [01:31] – Grantham's broad view on market bubbles, AI comparison
• [03:26–06:53] – Debunking the small-cap premium, value/quality vs myth
• [08:26] – Monopoly capitalism and structural profit margin changes
• [10:27–12:50] – Mean reversion in theory and practice
• [13:46–18:17] – Career risks, herding, and why professionals always follow the crowd
• [18:52] – Advice for individual investors during bubbles
• [22:32–23:29] – The singular importance of AI and its economic “animal spirits” effect
• [27:05–30:08] – Bubble comparisons: ‘Nifty Fifty’, Amazon, Japan, and AI
• [33:48] – Today’s opportunities: International value, precious metals
• [36:16–38:42] – Critique of Fed policy and institutional blindness
• [40:15–42:10] – Societal risks of inequality, profits, and breaking points
• [42:33–47:50] – Why he’s focused on mission-driven VC, and life/career advice for young people

This episode is essential listening for anyone seeking a sober, historic, and nuanced perspective on markets, risk, and investment purpose—from one of the field’s most original thinkers.