A View Forged In Chaos
Grantham acknowledges his own views on investing are colored by his experience. He began his career at mutual fund company Keystone in the 1960s as the great bull market of the postwar era was enjoying its final phase, a period The New Yorker’s John Brooks described memorably in a book titled The Go-Go Years. A group of equities emerged called “one-decision stocks,” meaning all an investor had to do was buy them and forget about them. From Grantham’s historical perspective, it was the only “genuine bubble in high-quality” companies.
Then came the 1973-74 bear market, a perfect storm that included the Arab-Israeli War, the oil embargo, Watergate and the advent of stagflation. The so-called one-decision Nifty Fifty stocks like Avon, Eastman Kodak and Polaroid cratered. Xerox, perhaps the hottest stock of that era, fell from $170 a share to $17 a share in little over a year.
By December 1974, much of the public had fled equities, and the Standard & Poor’s 500 index was yielding 5.5% and selling at seven times earnings. Working with Dean LeBaron and Dick Mayo at Batterymarch, an early pioneer in quantitative investing, Grantham recalls that it seemed like a stock needed to be yielding almost 10% to capture their attention. In the 1970s, if an investor bothered to show up and buy the cheap price-to-book or high-yielding stocks “you were going to win.”