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Jeremy Grantham was born toward the tail end of the Great Depression, but has surfed plenty of subsequent booms and busts in his storied investment career. He recounts the experience, with wit and humility, in *The Making of a Permabear*, which Grove Press will publish on Jan. 13. His most cherished investment belief? Mean reversion.
*Barron’s* spoke with Grantham, co-founder of Boston-based GMO, on Dec. 23 about the current stock market boom, his favorite investments, and the economic challenges that lie ahead. An edited version of the conversation follows.
***Barron’s*****: ’Tis the season for forecasts. What is your stock market forecast for 2026?**
Jeremy Grantham: We are overdue for a setback. There are so many negatives intruding that investors would be lucky to escape the coming year in one piece. That said, markets can keep climbing beyond our expectations. When the price/earnings multiple on Japanese stocks hit 50 times earnings in the 1980s, I remember thinking, this has to be the year \[when stocks sell off\]. But stocks continued to soar, and the market sold for 65 times earnings at the peak in 1989.
The Japanese market paid a price for being such an outlier: Japanese stocks fell for the next 20 years. The U.S. stock market is by no means the most extended in history. Japan was a much worse example.
**Where do you see value now in public markets?**
Outside the U.S. The investment bubble is extreme in the U.S., as it was in 2000, but there are plenty of reasonably priced opportunities elsewhere, as there were in 2000. My biggest investment for my family is in international developed-market value stocks. I have also invested in emerging market stocks.
I would recommend zero exposure to the U.S., but if you have to own U.S. stocks, own quality stocks. We define quality companies as those with high, stable returns, and low debt. They are franchise companies, with a degree of monopoly power and price control.
Quality stocks have slightly outperformed the market over the long run. A triple-A-rated bond underperforms “junkier” bonds by about a percentage point a year. But quality doesn’t underperform in the stock market. \[Top holdings in the GMO U.S. Quality exchange-traded fund include Microsoft, Alphabet, and Broadcom.\]
**Which non-U.S. markets look most appealing to you?**
Right behind international developed-market value, we have a big position for the family in Japan. The Japanese corporate system has been steadily improving for 20 or 30 years, and the market is still cheap. Plus, the yen, at 155 per dollar, is ludicrously cheap. It used to be breathtakingly expensive to visit Japan. Now it’s a cheap holiday.
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