I have recently read biographies of two of the most successful investors of our era: Warren Buffett and Jeremy Grantham. Both books provide a wealth of information about their approaches to investments—and both provide important insights about how to think about today’s stock market. Even if your investments are only in an S&P index or a similar “unmanaged” fund, these investors have insights that might interest you.

Read more: Insights from two legendary investors: Buffett and Gratham

Both of these men are relatively old: Buffett is 95 and Grantham is 87. Neither of them is running an investment business any more, but both are still fairly frequent commentators on the market. And both have been warning about the dangers of the current stock market, which they both think could be a bubble.

Please note that the statements below only scratch the surface of both men’s investment approaches. Read the books to get more of the details.

They did well, in part, by choosing when to do nothing. It goes almost without saying that both men are incredibly smart. They have managed to do better than other investors (and the market averages) over an investing lifetime. Both of them also worked incredibly hard, digging into the details of thousands of companies, some of them obscure, before deciding to invest in a handful of them.

Their investment techniques, described in a fair amount of detail in the two books, are different. But I was surprised by one aspect of their investing approach that was common to them both, and that played an important role in their success: they were both willing to go for long periods—months or even years—without making any investments at all.

Sitting on the sidelines and not investing was difficult for both of them, especially in times when the stock market was rising rapidly and others were making a lot of money (at least on paper). During those periods, they were under intense pressure from shareholders in their funds to buy into the upward trend. They had different ways of deflecting that pressure.

Warren Buffet, almost from the start, required those using his services to trust his investment decisions without question. He provided annual reports, but otherwise did not let his clients know what their money was invested in. He always avoided stocks that were rising beyond what he considered to be their intrinsic value, even when they were very popular with other investors. As a result he bought nothing for long periods. Buffett let his record speak for itself, and he developed a loyal following of investors who were willing to let him buy stocks (or not) as he saw fit.

Jeremy Grantham’s situation was different. He was selling investment services to corporate clients (mostly educational institutions and other non-profits). Like Buffett, he would not buy stocks when he felt they were overpriced, but found that his customers gradually jumped ship when he stayed out of the market during periods of major market upswings. Still, he stuck to his guns, and those who stayed with him did well.

Bubbles and their aftermath. Buffett and Grantham both managed to avoid major losses from the collapse of financial bubbles. In Buffett’s early investing, he looked for companies where the overall value of their stock was less than the value of their assets (such as the manufacturing equipment they owned). This enabled him to avoid investing in bubble stocks, and he did very well with this approach. But as investments of that type gradually dwindled and manufacturing became a smaller part of the economy, he had to develop more versatile methods of assessing the value of each company.  Still, he stuck to his philosophy: the overall value of the company’s stock (its “market capitalization”) had to be below what the company was worth, according to his methods. During a bubble, this situation rarely occurred, but after a bubble had burst, and investors were shying away from stocks generally, he was able to find many bargains.

Grantham had a different approach, but with much the same result. He recognized early on that many measures of a company’s financials, and of the market as a whole, tended to “revert to the mean”– that is, to go back to their average long-term values. By buying stock in companies whose level of profits was below the historical average or whose costs were temporarily unusually high, for example, Grantham could find good investments. Like Buffett, Grantham’s approach automatically protected him from bubble investments, and (like Buffett) he found many good investments in the wake of bubble collapses.

An example: the Global Financial Crisis. Both books provide details about how both men handled bubbles. Both books cover the “Global Financial Crisis” (GFC), which resulted from a bubble that collapsed in 2007-2009. The GFC was propelled (in large part) by investments in packages of mortgages, which were promoted as being perfectly safe investments, in spite of the fact that many of the mortgages were “sub-prime” and at risk of default. And as both books make clear, many other risky investments were being made besides those in mortgages.

After a multi-year run-up, the stock market went into freefall in October of 2007. During the following year, Lehman Brothers would fail, Bear Stearns would undergo a forced sale, and insurance giant AIG would get a government bailout.

Buffett found some good investment opportunities emerging from the crisis. Since he had cash on hand, he was able to invest in a desperate Goldman Sachs at a guaranteed return of around 15%. He made a similar investment in GE. Buffett found many good deals among bonds that were being offered at bargain prices by companies that were desperate for capital. Over the following year, he lent money at very high interest rates to many companies, including Harley-Davidson, Tiffany, and others. His company came out of the GFC in excellent shape.

Grantham, too, weathered the GFC in good shape. In March of 2009, as the stock market was approaching its lowest point (down 57% from its peak), Grantham wrote (in a letter posted to his company website) that he had begun making significant investments. At a time when other investors had given up on the market because it continued to decline, Grantham calculated that investments would be returning 10% or more as the market “reverted to the mean”. Subsequent events bore him out and his investments did well.  

What are they saying today? The Warren Buffett biography that is the basis for this blog post was written in 2008 (with a 2009 update). The Jeremy Grantham biography was written in 2025. Thus, neither book provides up-to-date information about either man’s current opinions. But a Google search reveals that both Grantham and Buffett are deeply worried about today’s stock market.

In May, Buffett described the market as a “church with a casino attached”—in other words, investors have great faith in the market but they may not see that they are gambling by investing in it. Buffett views investing at present levels to be “playing with fire”.  While his company has held onto many of its existing investments, it has not been investing in new ones, with the result that it has almost $400 billion in cash waiting for the right moment to invest—which is apparently not right now.

Grantham is aggressively warning investors about the current “bubble”. His calculations indicate that this is the most expensive stock market in American history, and he is looking for a decline of (ultimately) 70% to get back to historical means. He’s a fan of artificial intelligence, but doesn’t expect investments in the current AI leaders to turn out well (just as most of the railroad-building and internet companies went bankrupt in those bubbles). And yet, AI and related technologies account for a big part of the stock market at the moment.

This is a good time to take seriously the cautionary messages from these two legendary investors. You might want to check with your investment professional about whether you are adequately protected against the market declines that Buffett and Grantham are predicting. They’ve been through this before.