Jeremy Grantham thinks a stock market crash will hit us in 2023. But who’s he?
He’s the guy who predicted the great dotcom bust in 2000. That wasn’t hard, mind. Many of us looking at all those loss-making web start-ups valued at billions saw that coming.
He also, it seems, foresaw the 2008 banking crisis. So he gets some credit for that one.
Bearish outlook
Oh, and he’s a co-founder of investment firm GMO. And he’s well known for his bearish outlook on the finance world.
Right now, Grantham reckons we could see a 50% stock market wipeout in 2023.
Might he be right? Well, there’s always a chance of it happening. But I see it as very slim. Even his most upbeat outlook for the year, a fall of around 25%, looks way too pessimistic to me.
But I see a few things that might possibly trigger a stock market crash.
Some dark clouds
Inflation and interest rates are two parts of the same threat. UK inflation has dipped a bit. But at 10.1%, it’s still higher than we’d hoped. That, coupled with soaring prices of basic goods, puts a big squeeze on spending. And spending is needed to keep the economy going and keep company earnings up.
And if that all stops, then yes, I think we could have a crash. But I still rate the chances as low.
But isn’t it wise to prepare for a crash in any case? There’s not much point waiting until after it happens to think about how to deal with it.
He loves a crash
Well, I know someone who invests as if the market was set to close the very next day and not open for 10 years. I’m talking about billionaire investor Warren Buffett, and he has a few things to say about what to do in a market crash.
In short, his approach is to buy, buy, buy!
Here’s a quote from his 2016 letter to Berkshire Hathaway shareholders:
Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.
If we’re in it for the long term, and we think shares are good value, then it makes sense to buy more of them if they crash. Doesn’t it?
I’d buy cheap stocks
Grantham is talking about US stocks in his dire warnings. And they do look more highly valued than UK shares. But then that’s pretty much always the case. US investors do seem to put a higher premium on company earnings than we do here.
Pundits generally expect the S&P 500 index to end the year a few percent down. And I see a fair chance of that, especially if the US tips into recession.
But a 50% crash? I just don’t see that coming. Yet I’d love to be able to buy Lloyds Banking Group shares for 23p, or Tesco for 140p. I’d even buy Rolls-Royce Holdings shares if I could get them for 75p.
