This Stock Market Guru Warns: Sell Your Stocks Now!

Jeremy Grantham is well known for his prophetic stock predictions. He’s now worried about market indexes like the S&P/TSX Composite Index.

Jeremy Grantham is well known for his prophetic stock predictions. His advice has proven particularly valuable for Canadian investors.

Unfortunately, Grantham sees trouble ahead. Heeding his wisdom could save your portfolio.

Trust this guru

Consider Grantham’s incredible call in early February of 2014. He predicted that investors in oil sands companies like Canadian Natural Resources, Suncor Energy, and Imperial Oil would ultimately lose everything.

“Tar sands will end up as a stranded asset in the next decade or two,” Grantham cautioned.

At the time, few people paid attention to this warning. After all, oil prices were above US$110 per barrel. But five months later, crude oil prices were slashed in half. The stocks listed above were crushed.

But Grantham doesn’t do month-by-month predictions. Grantham thinks long term. He didn’t say those stocks would be punished that summer. He said they would be punished for decades.

It’s been six years since his original oil call. Over that period, Canadian Natural has lost 45% of its value, Suncor has fallen 40%, and Imperial is down 55%. Meanwhile, the S&P/TSX Composite Index gained 6%.

Protect your portfolio

This time, Grantham isn’t warned people about oil stocks. Instead, he’s worried about the entire market.

Investing right now in over-inflated markets like the U.S. is “simply playing with fire,” Grantham told CNBC last week.

“I have been completely amazed,” he said. “It is a rally without precedent — the fastest in this time ever and the only one in the history books that takes place against a background of undeniable economic problems.”

“This is becoming the fourth real McCoy bubble of my career,” he concluded.

Grantham is putting his money where his mouth is. His firm, GMO Asset Management, is hedging its portfolio against another collapse.

“With a rapidity seldom matched in history, equities have gone from plausibly priced for very bad outcomes to more or less ignoring the possibility,” said Ben Inker, who runs asset allocation at GMO.

“As a result, we have taken advantage of the higher prices to significantly reduce the effective equity weight in our multi-asset portfolios, turning some of it into long/short trades where we maintain exposure to relatively cheap stocks but reduce the portfolio’s sensitivity to overall market direction,” Inker explained.

Buy stocks like this

GMO Asset Management made several moves to reduce its risk exposure. If you’re worried about another bear market, now is the time to follow suit.

Importantly, reducing your risk doesn’t mean selling all of your investments. There are some companies that can actually gain in value during the next recession.

Consider Hydro One. This is the definition of a bullet-proof stock. During the worst of the coronavirus correction, its share price barely budged. What’s the secret?

Hydro One is a regulated utility. It delivers electricity to customers in Ontario. Its power lines cover 98% of the province. Wherever the economy goes, electricity demand remains very stable. And because Hydro One is rate regulated, it’s almost guaranteed a certain profit margin from the government.

Warren Buffett once said his favourite stocks were like shooting fish in a barrel with all the water drained out. In short, he likes sure things. If you want to protect your portfolio, find stocks like Hydro One. Build your bear market buy list now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ryan Vanzo has no position in any stocks mentioned.

More on Energy Stocks

a man relaxes with his feet on a pile of books
Energy Stocks

7.9% Dividend Yield? I’m Buying This TSX Passive-Income Stock in Bulk!

This passive-income stock is a strong buy for its dividend, especially for its consistency and growth thanks to the Keystone…

Read more »

golden sunset in crude oil refinery with pipeline system
Energy Stocks

1 Canadian Energy Stock to Buy Confidently and 1 to Avoid for Now 

The Canadian energy sector is witnessing strong momentum amid geopolitical tensions. Here is an energy stock to buy and one…

Read more »

how to save money
Energy Stocks

3 No Brainer Oil Stocks to Buy With $1,000 Right Now

Canadian Natural Resources (TSX:CNQ) stock is looking good in November 2024.

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Is Enbridge Stock a Buy for its Dividend Yield?

Enbridge is up 24% in 2024. Are more gains on the way?

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

Best Stock to Buy Right Now: Enbridge vs TC Energy?

Both Enbridge stock and TD Bank offer strong dividends as well as future growth. But what about ongoing issues?

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Top Oil and Gas Stocks to Buy Now in Canada

Oil and gas stocks are in the limelight, making new highs. You could consider buying these stocks to take advantage…

Read more »

oil pump jack under night sky
Energy Stocks

Oil Price Outlook for 2025, Plus Smart Energy Stocks

If you are looking to buy some energy stocks now or next year, it's essential to consider the oil price…

Read more »

oil and gas pipeline
Energy Stocks

Best Stock to Buy Right Now: TC Energy vs Enbridge?

These TSX energy infrastructure giants are on a roll.

Read more »