Jeremy Grantham is invested in the same 'bubble' he keeps warning about - Markets Insider

Jeremy Grantham.

Matthew Lloyd/Getty Images for ReSource 2012

• Despite warnings about an ongoing bubble in the stock market, Jeremy Grantham is staying invested in one of the most speculative areas of the market.
• Grantham has invested much of his wealth in green investments and made big money in profitless companies like QuantumScape.
• "There may be a bubble that will affect this for a year or two, but it will come back bigger and better than other groups," Grantham told Bloomberg.

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Billionaire investor Jeremy Grantham has been warning about a bubble in stocks for years, but that hasn't stopped him from investing in one of the most speculative areas of the market known for being years away from profitability.

For years, he has been putting much of his wealth in green investments that are tackling the big problem of climate change - and in the process, he's made a lot of money.

It's an unexpected path for a long-time value investor who is often more focused on cash flows, profits, and valuations rather than the long-term potential of a technology. Now, Grantham is investing in risky green-focused SPACs and early-stage venture capital that has no doubt benefited from the ongoing rise in stock market valuations.

In other words, he is benefiting from the same thing he has been worried about for years: a potential stock market bubble. 

But given the threat of climate change - represented by ongoing wildfires, floods, and extreme weather events - along with the likely response from policymakers in the form of carbon taxes and other climate-friendly legislation, the investments make sense to Grantham.

"This is going on as far as the eye can see. It's an unfair advantage for green investing. There may be a bubble that will affect this for a year or two, but it will come back bigger and better than other groups because of this tailwind. This is going to be the most important investment theme for the rest of your life," he told Bloomberg.

About half of the $1.4 billion in assets Grantham manages across a foundation, charitable trust, and his personal holdings is slated for green venture investments, according to Bloomberg. In particular, he said he is looking for "neglected climate opportunities" that "have the potential to change the world."

The investments made by Grantham are paying off. Over the past decade, he said his venture-capital portfolio has returned 19% annually, helped in part by a 102% surge in 2020. The gains were driven by an early-stage $12.5 million investment in QuantumScape, which went public via SPAC last year and delivered a surprise windfall for Grantham.

His second-largest direct investment is Greenlight Biosciences, which is working to turn RNA molecules into an environmentally friendly alternative to pesticides. Greenlight said in August it's going public via a SPAC merger.

But many of Grantham's early green investments didn't pan out, and he's banking on a few big wins to make up for many small losses, a common strategy in early-stage investing.

"We expect to have many failures, but when we win, we expect it to be a very big win," Grantham said. 

And while he is bullish on green investments, one green stock he's avoiding is Tesla, which he believes is, you guessed it, in a bubble.