The Compound and Friends – Episode 226

"Jeremy Grantham: Stop Ruining My Perfectly Good Bear Market"

Date: January 23, 2026
Guests: Jeremy Grantham, Josh Brown, Michael Batnick

Episode Overview

This episode features a deep-dive conversation with Jeremy Grantham, legendary investor, co-founder and Chairman of GMO, and renowned market historian. Grantham discusses his new book, The Making of a Perma Bear: The Perils of Long Term Investing in a Short Term World, contemplates his reputation as a “perma bear,” analyzes past and present market cycles, reflects on career risk, client behavior, and the evolution of market structure, and shares his thoughts on societal and economic challenges—including inequality, monopoly, population decline, and the future of energy and technology.

Main Discussion Themes

1. Jeremy Grantham’s Career, Reputation, and Book

• The “Perma Bear” Label

  • Grantham explains the tongue-in-cheek title of his autobiography, wishing he could have put quotation marks around "Perma Bear."
    • “It's a bit too subtle for me. I was outvoted for inverted commas around Perma Bear, which would have said that's what people call me – yes, the idiots, but what the hell.” – Grantham, [04:00]
  • He rejects the idea that he’s always bearish, stressing he’s simply long-term focused in a short-term-obsessed market.

• Market Patience vs. Investor Short-Termism

  • “The patience and the time horizon of the average investor is extremely short... whenever you have a long, drawn out bull market ... anyone who has been four or five years saying that the market prices are way over normal is a complete mad dog ... and so four or five years is so long, it seems like a perma bear.” – Grantham, [04:39]
  • Grantham describes how being right eventually is little consolation if clients lose faith and fire you in the meantime.

• Notable Career Pioneering

  • Among the first to advocate and implement index funds in the early 1970s, even before Vanguard.
  • Early adopter of small cap value investing and quant strategies, and first to combine value and momentum.

2. Anatomy of Modern Bull Markets and Bubbles

• Unique Structure of the 2009–2026 Bull Market

  • Josh Brown calls this era "four bull markets in one": post-GFC rebound, buyback-driven phase, COVID-stimulus-fueled rally, and 2023+ AI CapEx boom.

    • “I don't think so. I'm very happy to take your summary. Saves me a lot of effort.” – Grantham, [08:39]

  • Only in the latter phases did "deep bubble territory" behaviors emerge, including speculative mania in one segment (e.g., ARKK, Quantumscape) while blue chips pressed higher, mirroring past bubbles (1929, 1972, 2000).

• Bubble Dynamics and Bubbles as “Good Ideas Overhyped”

  • “People think that bubbles are crappy ideas that are overhyped. And bubbles are absolutely the opposite. Bubbles are magnificent ideas that are overhyped.” – Grantham, [12:52]

• Bear Market Interrupted by AI

  • Grantham laments the 2022–23 bear market was “ruined” by the explosive arrival of AI, which supercharged mega-cap tech.
    • “Without that one and a half percent, without that oomph in the stock market from AI, we would have had a recession, and the market would have continued down and it might have hit trend minus 50. We'll never know.” – Grantham, [47:10]
  • Describes AI as “as obvious as anything since the railroads,” positioning it as the most important technological event in 100 years.
    • “Historians will say you had the railroads in the 19th century, nothing much in the 20th, and you had this one in the 21st.” – Grantham, [49:13]

3. Investing Time Horizons, Career Risk, and Market Structure

• Mismatch of Long-Term Value Investing and Client Patience

  • “My own time horizon interest barely overlaps with anything in the market. Mine is several years. And the market's outlook turns out to be very short... I'd have made a lot more money for my clients and myself ... If only my time horizon hadn't been a bit shorter. That's my confession.” – Grantham (read by host), [18:47]
  • Grantham recounts losing half his AUM during dot-com for refusing to participate in the tech bubble, only to be proven correct and still not win back fired clients.

• Career Risk and Human Nature

  • “Everyone has career risk. And the uncertainty in a great bubble... is longer than the client's patience. And if you can say that, you know why the Goldman Sachs, Morgan Stanleys, JP Morgans ... cannot fight a major bubble.” – Grantham, [21:53]

• The Challenge of Documentation vs. Practicality

  • Grantham jokes about being “too damn pure,” too academic and rational, unable to let clients “sin a little” and have exposure to trending assets just to keep them happy.
  • “You can't expect your clients to be able to chew on career risk that much. They just can't do it with school fees.” – Grantham, [30:14]

4. Reflections on Financial History and Human Nature

• Clients Never Come Back

  • Even after outperforming during crises, institutions rarely rehire managers they’ve previously fired:
    • “Not one solitary person. … It's human nature… you fired them, you bought a growth manager, … they made a few percent and now you're going to go back? No way.” – Grantham, [35:11]

• Market Cycles Repeat with New Names

  • Grantham draws parallels between current eras and the 1920s, 1960s–70s, and early 2000s, citing the repetition of speculative excess, crowd behavior, and narrative cycles.

5. Market Structure Evolution: Indexing, Retail, and Passive/Active Flows

• Rise of the Index Fund and Market “Poker Game”

  • Grantham was an early proponent of indexing, not because he believed in efficient markets, but because removing friction made better returns for investors.

• Active vs. Passive, and Retail Trading Revival

  • Hosts highlight massive flows from active funds to passive vehicles, but simultaneously, a boom in retail speculation (Robinhood, options).
    • “It is said that in ‘29 there was an awful lot of ordinary people for the first time playing and losing their shirts. … And people in the 50s, 60s, 70s, 80s really stayed out. They played real estate with their money.” – Grantham, [39:38]
  • Grantham predicts this new cohort will eventually get “wiped out” sooner or later, echoing past cycles.

6. Economic and Social Macro: Margins, Inequality, Monopoly, and Structural Shifts

• Profit Margins and “Paradigm Shift”

  • Margins, once highly mean-reverting, have remained at record highs for decades, defying Grantham’s and others’ expectations.
  • “Starting in the 21st century, there is apparently a paradigm shift ... which for a number of decades causes the profit margins to go up and the share of GDP to go up.” – Grantham, [51:57]

• Inequality and the 'Rich and Powerful'

  • Real wages for median Americans have stalled since 1975, while European counterparts’ wages have surged.
  • “This country needs to be saved from the rich and powerful, and every goddamn group on that table agreed. ... What has happened since then...? More of the same.” – Grantham, [54:33]

• Causes: Outsourcing, Policy, Monopoly, and Citizens United

  • Outsourcing, the decline of antitrust enforcement, rise of super PACs, and Citizens United are cited as key contributors:
    • “Citizen United is like a 2010 dagger in the back of democracy, isn't it?” – Grantham, [60:46]
  • “The Justice Department does not have to go to sleep. In the earlier period, it was out and about ... and then it went to sleep. In the last 50 years ... it does nothing and backs off.” – Grantham, [60:57]

• Scale Limits and Minsky Risk

  • Grantham references Jeffrey West’s Scale and invokes Hyman Minsky, warning the system is vulnerable to an unexpected shock—“the strut cracks on this elaborate bridge.” – Grantham, [63:49]

7. Population Decline, Climate Change, and Long-term Risks

• Demographic Ice Age

  • Grantham warns that plummeting birth rates—especially in China, Japan, Korea, and now the US—will sap economic dynamism and demand.
  • “If you live in a country where two or three decades of decline, you lose your moxie ... Why would you reach for extra debt, open another factory, when you know that everywhere in Japan there are fewer people?” – Grantham, [67:41]

• Climate Change Damages Now

  • Extreme weather and climate disasters are now subtracting from global GDP growth, both through direct destruction and “preparing to fix or fixing climate damage.”
  • “It was worked out ... from 2000 about a quarter of the growth in GDP was preparing to fix or fixing climate damage.” – Grantham, [64:52]

8. Paths Forward: Technology, Energy, and Human Ingenuity

• American Innovation and Geothermal/Fusion Hopes
  • Grantham is optimistic about America's capacity for innovation, especially in energy.
    • Cites the fracking revolution as evidence of what’s possible if private sector energy, brains, and risk-taking are harnessed in the public interest.
      • “If you could take the fracking genius and transfer it to geothermal...it’s infinite. You never run out.” – Grantham, [75:37]
  • Encourages listeners to keep an eye on fusion and particularly on the continually plunging cost of energy storage (“storage over 20 years is $0.05, $0.08 on the dollar”).

Notable Quotes & Key Moments

• On Bubbles:

  • “Bubbles are magnificent ideas that are overhyped.” – Jeremy Grantham, [12:52]

• On American Worker Stagnation:

  • “The average Frenchman ... is up 140% [since 1975] and we're up 15%.” – Jeremy Grantham, [53:05]

• On Client Behavior:

  • “Not one solitary person [came back]. It's human nature. … Humans can't do it.” – Jeremy Grantham, [35:11]

• On Monopoly & Margins:

  • “Monopoly is the very essence of profit margin. ... Those Coca Colas of the world. And Nvidias are allowed to have more power.” – Jeremy Grantham, [62:38]

• On Career Risk:

  • “It's not a viable business strategy to fight the great bull markets. You can't do it and no one does it. You have to be somewhat free of career risk.” – Jeremy Grantham, [25:18]

• On Population:

  • “At 1.6 [babies per family], you're losing a quarter of your babies each 30 year generation.” – Jeremy Grantham, [67:35]

• On Optimism and Ingenuity:

  • “We are very inventive … particularly in America, we take risks, we get together, we experiment.” – Jeremy Grantham, [72:39]

• On Compound Growth:

  • “[If you compounded possessions at 4.5% for 3,000 years] ... it is billions of solar systems full with our crap at a lousy 3,000 years of four and a half percent compounded. ... You could now check it on your phone. ... It will tell you that what I say is correct.” – Jeremy Grantham, [80:53]

Timestamps for Key Segments

• The “Perma Bear” moniker, book genesis – [04:00]
• Bull market phases since 2009 – [08:39]
• Market bubbles & AI as disruption – [11:54]/[47:10]
• Confessions: time horizons & career risk – [18:47]/[21:53]
• Client behavior & why fired managers don’t get rehired – [35:11]
• Rise of passive, retail speculation, market structure – [38:06]/[41:53]
• Profit margins, monopoly, and inequality – [51:57]/[53:05]
• Causes: policy, Citizens United, antitrust fade – [60:26]
• Minsky, scale, fragility, possible catalysts for end of current era – [63:49]
• Population bust and its effects – [67:35]
• Climate change as economic drag – [64:52]
• Optimism: geothermal, fusion, innovation – [72:39]/[75:37]

Tone and Style

The conversation is lively, candid, and wide-ranging, filled with anecdotes, intellectual humility, and Grantham’s dry, self-deprecating British wit. Both hosts and guest offer candid confessions about mistakes and regrets, and the mood alternates between dead-serious macroeconomic warnings and playful self-reflection.

Closing

Grantham praises the show’s audience, calling them “the best out there” for their thoughtful engagement and market interest. The episode closes by encouraging listeners to pick up Grantham’s new autobiography, The Making of a Perma Bear, and look for optimism in humanity’s ingenuity, even in the face of daunting demographic, economic, and environmental challenges.