July 21, 2025 | Grantham: Don’t Be Conned By Those Selling Shovels In The Gold Rush

The Next Twelve Months Price-to-Earnings ratio (NTM P/E, shown below courtesy of ISABELNET) is one of the historically relevant forward-looking valuation metrics that compares a company’s current share price to its projected earnings over the next 12 months. Today’s sky-high US equity valuations, highlighted in dark blue, are comparable only to the rare, infamous peaks of the 2000 and 1929 stock market bubbles.  The 20-year median NTM P/E is marked in grey for each index.

There has never been a time when extreme investor overconfidence was not ultimately punished by equally dramatic loss cycles.

Unlike most professional portfolio managers, individuals do not have to stay invested in asset bubbles. Grantham calls this “the amateur advantage”. Unfortunately, most lack the discipline and insight to resist the madness of crowds, and they tend to buy most near the top of the price cycle. Most wait until the hammer lands on the head and then react by selling and firing their financial advisor after the inevitable loss cycles.

As Grantham notes, with the world dominated by financial salespeople, “the average investor will never hear that the market is dreadfully dangerous and overpriced when it is, in fact, dreadfully dangerous and overpriced.”

Other international market valuations are less inflated than the US today, but they are highly correlated nonetheless. The Canadian stock market has repeatedly declined pretty much in lockstep with American markets, most recently in 2000, 2008, 2020, 2022-23, and February 2025.

The chart below, courtesy of my partner Cory Venable, highlights the close correlation between the S&P 500 (in red) and Canada’s TSX (in black) during drawdowns (red arrows), since 1990.

This week Wilf speaks to the man who has predicted some of the biggest stock market bubbles of the last 5 decades – Jeremy Grantham – who, on the day that NVIDIA hits $4trn market cap predicts that we are nearing the top of another major bubble, likening Nvidia’s success to the “guy selling shovels at the peak of the gold rush”. Striking a very bearish note on the US Magnificent 7, he discusses the pain that predicting crashes too early causes finance professionals but how private individuals have advantages as long as they step back and look at the data, as he shares his advice for investors following a legendary career. Here is a direct video link.

Some bonus content from Wilf’s conversation earlier this week with the Founder, Chairman, and Long Term Investment Strategist at GMO, Jeremy Grantham, this time focusing on the biggest long term risks he sees for the market, and humanity, including toxicity, declining fertility and climate change. Here is a direct video link to part 2.

Grantham’s logline:

“Don’t be conned into being super optimistic by the professionals, by the industry that makes money from overconfidence–lots and lots of money. Um, look around for signs of crazy bubbly behaviour, to the moon, to the moon sort of thing. Um, which we have seen as splendidly these several years as we have ever seen in history, which is a high hurdle.”

Danielle Park July 21st, 2025

Posted In: Juggling Dynamite

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