Jeremy Grantham says “Buy” before “Rigor Mortis sets in”


By Sree Vidya Bhaktavatsalam

March 10 (Bloomberg) — Jeremy Grantham, who oversees $85 billion as chief investment strategist of Grantham Mayo Van Otterloo & Co., urged investors to start moving money from cash to stocks before “rigor mortis” sets in.

“Typically, those with a lot of cash will miss a very large chunk of the market recovery,” Grantham wrote in a March 4 commentary posted today on the Boston-based firm’s Web site.

Grantham, who last year reversed his decade-long bearish stance on stocks, maintained his view from January that the Standard & Poor’s 500 Index may fall below 600 before rebounding. The benchmark U.S. index dropped yesterday to 676.53, the lowest since September 1996, before gaining 5.1 percent to 711.56 as of 1:58 p.m. in New York. Based on his estimate of fair value, the S&P 500 should be valued at 900.

“Remember that you will never catch the low,” wrote Grantham, one of the co-founders of GMO. He expects stocks to return 10 percent to 13 percent after inflation in the next seven years.

The S&P 500 Index has declined 21 percent this year as the global economy worsened, raising concern that corporate earnings would be slashed and major U.S. banks would need to be nationalized. Today, stocks rallied after Citigroup Inc. said it is having its best quarter since 2007.

Grantham told investors to make the shift from cash to stocks in a “few large steps” instead of all at once. GMO started reinvesting in stocks in October, and has a schedule for more moves based on future market declines, Grantham wrote.

Grantham, 70, nicknamed a “perma-bear” by colleagues because of his grim view on stocks for more than a decade, told investors in January 2008 to shift to cash. By October, stock prices had fallen so far that he recommended buying them.

He correctly predicted a crash in technology shares two months before the bubble burst in 2000. In 2007, he said the credit bubble would trigger the demise of at least one bank and cause half of hedge-fund managers to close.

To READ Jeremy Grantham’s March Letter, click here


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