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00:00You and I have talked about the perils of shorting single name stocks. Dangerous business. But given where things are and your level of certainty would you short an index. Would you short tech stocks. Would you short the S & P 500. Personally as opposed to GMO in the foundation we have for the protection of the environment. We are indeed short a decent amount of Russell 2000. So we haven't been hurt in the last year which is amazing. We're also sure to about half as much again as in NASDAQ which did hurt us but not sensationally. And the point there is a lot of our money is in venture capital. That's very growth. We need some hedging and. If we weren't exposed to a large amount of growth stocks I suspect we would skip. The hedging. We will skip going short. In any case I would never shot an individual name. I would only shot a broad index and the indices I would shot if I was up for that would be the Russell 2000 because they have a high density of flaky companies that aren't making any money. And and the NASDAQ which also has a high and high percentage of companies not making any earnings at all. What makes the NASDAQ more complicated is that it has these remarkable fang stocks in it and. That that makes life complicated. What if I'm a long term investor. Say running a pension fund or managing my own for one K which I should add I don't. But what if I'm one of those people and I look at history and history tells me that over time independent or including crashes. Stocks deliver a handsome return and if I just stay in the market I'll get that return whether it's 7 percent or 8 percent or 9 percent or 10 percent over time. Know if you could set your dial for 50 years and. Throw the key away that might make some sense. But let me remind you that in 1929 you didn't get back in real terms until about 1954. That's a long wait. In 2000 you didn't get back for 13 years. By modern standards that's a pretty long wait. And in Japan which is really the granddaddy of both bubbles land and stocks they are not back to the 1989 peak. Today. That is a very very long wait. So if you think you can stand it for 10 or 20 or even 30 years. Be my guest. But history says a lot of you will not stand it. A lot of you will become more conservative deep into this kind of correction.

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Why GMO’s Jeremy Grantham is Shorting ‘Flaky’ Stocks

Jeremy Grantham, the longtime value manager and co-founder of Boston's GMO, has been preparing for a stock-market meltdown. In this interview excerpt he explains why he’s been shorting the Nasdaq Composite and Russell 2000 indices at his environmental foundation. He spoke exclusively to Erik Schatzker on Bloomberg's "Front Row." (Source: Bloomberg)

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