From The Wall Street Journal:
Jeremy Grantham (Trades, Portfolio)
Chief investment strategist at GMO LLC in Boston, known for warnings about both the late-1990s tech-stock bubble and 2008’s credit bubble.
HIT: When Jeremy Grantham (Trades, Portfolio)’s firm took a cautious stance on popular but expensive tech stocks in 1999, performance suffered and clients bolted. He and his team stuck to their guns and were rewarded when tech shares crashed and the firm rebounded sharply in the early 2000s.
Too many investing pros are afraid of immediate-term “career risk,” Mr. Grantham says, so they chase hot investment trends instead of aiming for superior long-term returns in cheap, unloved corners of the market.
GMO, the firm Mr. Grantham co-founded, was one of the first to emphasize an asset-class allocation strategy, which many rivals shied away from, likely because large multiasset bets carry more career risk. The market is more likely to misprice asset classes than individual securities, however, so they “offer more opportunity,” he says.
THE LESSON: “There are inefficiencies in moving global assets around, not unlike stocks decades ago,” he says. “The bigger the range of assets you can invest in, the less competition you will have and the better the opportunities.”
MISS: Mr. Grantham became interested in stocks at 16 when a family friend shared an upbeat outlook for his company. Mr. Grantham quickly bought up shares. Within about a year, the company was in an accounting scandal and the shares were worthless.
He didn’t learn. Fourteen years later, Mr. Grantham heard a pitch for American Raceways, a company that was going to introduce Formula One racing in the U.S. “I got hooked,” he says. “We thought we would make money beyond our dreams.”
Mr. Grantham bought 300 shares for himself at $7 and went on vacation to Germany with his wife. When they came home three weeks later, the stock was at $21. He sold everything else he had, borrowed more money and soon owned 900 shares. Months later, American Raceways hit $100. “I figured I had the golden touch.” Were millions of dollars to come?
But the stock began tumbling. It dropped more each day, torturing Mr. Grantham. Americans weren’t ready to embrace Formula One racing after all.
The stock went down so fast that Mr. Grantham worried he wouldn’t be able to pay back his lenders. He managed to exit the position with just enough money to pay his debt.
THE LESSON: “I realized investing wasn’t a game,” says Mr. Grantham. “I swore off speculation for life. I became a cautious, value investor.” (Meanwhile, as the couple’s net worth soared and then plunged, Mr. Grantham’s wife refrained from pointing the finger at him—another “powerful lesson,” this time in the importance of marrying the right person, he says.)
For the full article: http://www.wsj.com/articles/four-star-investors-reveal-their-biggest-investing-hits-and-misses-1428377306
