Understand Why No One Will Warn You
Grantham ran an experiment at a 1,200-person conference of the Society of Analysts during the run-up to the 2000 tech bubble. He asked the 400 full-time stock market experts in the room two questions. First: if the market dropped from 31 times earnings back to a more normal 17 times, would that guarantee a major bear market? All 400 said yes. Second: did they think it would happen? More than 99 percent said yes, it would happen. Then he described what those same experts' employers were doing at that exact moment. The senior people from Goldman Sachs, Morgan Stanley, and JP Morgan were on the podium telling audiences to relax and muddle through. The engine room knew. The public face said nothing. Grantham calls it a betrayal of trust. His explanation for why it happens is structural and not conspiratorial: if you warn clients the market is overpriced and the market keeps going up for another two years, the client fires you. You underperform in a bull market, your competitors do not, and you lose the account. His own firm did warn clients in 1998 and lost half their book of business in two and a quarter years before being proved right. His argument is that this dynamic has never changed. It applied in 1929, in 1972, in 2000, and it applies today. The people paid to advise you have an incentive structure that makes honest macro warnings essentially impossible. Knowing this does not require cynicism about individuals. It just requires understanding the system they operate inside.