The Path of a Proud Pessimist

ROBERT NEUBECKERBUY LOW, sell high, get rich. Jeremy Grantham's Wall Street career exactly conforms to this charmed sequence, but with what troubles along the way. The reader, at least, will be glad for them. They constitute the breath and the life of "The Making of a Permabear," a memoir written with the financial journalist Edward Chancellor.Mr. Grantham, a co-founder and longtime investment strategist at the Boston-based money-management firm GMO, can be said to have dug the ruts and potholes on his own bumpy road.He is a nonconformist. Worse, in the context of today's flyaway stock market, he is a principled, value-minded, dogmatic nonconformist. He has nailed his colors to the mast of investment value (don't overpay for stocks and bonds) and to the idea that profit margins and equity valuations never stray far from their respective long-term averages. He lays down the rule that "capital moves toward profits: excess returns attract competition and bad returns drive capital away. Pretty soon you have mean reversion." Who can disagree? The market can and does so more often than you might suppose. At intervals since the 2007-09 financial crisis, share prices have risen in defiance of the norms of valuation and meanreversion on which Mr. Grantham has staked his all. At the moment, the values of blue-chip stocks, calculated according to their cyclically adjusted price-earnings ratio, are the second priciest on record (the exception being not 1929 but the 2000 peak of the dotcom bubble). "The long-run prospects for the broad market look as poor as almost any time in history," Mr. Grantham opines.The tension between what the market is doing and what, by the author's lights, it ought to be doing, will keep investment-minded readers turning these smart and accessible pages.