GMO's Jeremy Grantham on Climate Change and Investable Ideas

The British-born money manager talks about climate change, writer’s block, and his new farm in Maui

Photograph by Harry Gould Harvey IV for Bloomberg Businessweek

What was a 74-year-old asset manager, who oversees $100 billion, doing at a Keystone XL pipeline protest outside the White House?
The biggest issue confronting us is the deterioration of the environment, particularly damage to the climate.

It’s one thing to warn in a quarterly letter about a carbon bubble and another to maybe get arrested for it. Why did you take that step?
Within the U.S., the biggest problem is coal and tar sands. If we burn half or more of what we have in two areas in North America, there is no chance of avoiding very dire consequences. Rising water levels displacing hundreds of millions of people globally, destabilizing global politics, acidification of the water almost certainly destroying most of the coral reefs, and possibly threatening the bottom of the food chain in the ocean.

In November, you wrote that scientists must sound a more desperate note.
I think they have an ethical responsibility.

Did you ever think you would be out in front of scientists?
I’m not out in front. What they are reflecting is what we learned in the investment business: the significance of career risk. I made a living pointing out that our No. 1 job is not managing money; it’s keeping our job. Short-term momentum investing dominates because of that. The scientists are protecting their jobs. How they do that is to stay out of the limelight and make sure they’re conservative.

What is your opinion of young people? They’re not out in the streets. They are still flocking to Wall Street.
They’re not flocking quite so enthusiastically to the financial world. I am prepared to take my optimism wherever I can get it.

Obviously, they haven’t responded. It may seem too distant, which is ridiculous because this is happening so fast that this is their lives, not their children’s.

How do you start with big observations and get to investable ideas?
The only investable idea I have real confidence in is farming and forestry. My family owns some forest, and now we’re closing on a farm. Make the farming more sustainable and the forestry more sustainable, and everyone benefits.

Can you talk more about the farm?
We’re buying a farm to do comprehensive experiments and broad-based agriculture. What they call “mob grazing”—a high density of cattle, moving them around, making sure that they eat everything that’s there. They trample the seed and so on and they fertilize it. Using goats to eat invasive plants, using chickens to follow the cattle and pigs to eat the leftover vegetables and the fallen fruit, orchards growing fruit and organic vegetables, over 200 acres.

Where is this?
Maui. My elder son is at Harvard Management Co. He does exotic forestry and farming investments. The second son is a forester. This will give us data and experiments without betting the farm on any one of them.

When do you plan to get seeds inthe ground?
Immediately. They’ll start small. It will hopefully be a template. They use this offensive word “holistic.” I hate it. It’s the world’s most pretentious word.

How long do you let an idea percolate before you commit it to one of your quarterly letters to investors?
Sometimes years. I have a decent idea about the exaggerated attention given to debt. I seem to be having writer’s block.

What is this big idea?
I’m not saying it’s a big idea. It may be very humble. I noticed a series of deficiencies in the data as typically presented. It’s as if only debt matters, only finance matters, only banking matters. We have been manipulated to see ourselves in a world where those things rule the roost and therefore we have to be protective of the big banks.

Can the Fed take away easy money without jolting the markets?
Who cares? This is the game I’m complaining about. We will prosper by the quality and quantity of our labor and capital. Do not pretend that how they twitch around has any material effect.

Many people intuit that climate change is getting worse, but put it out of their heads. Why do you find this interesting?
I like to be right. I try not to miss the big ideas, forget the little ones, and try to get them right. End of job description.

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