Fortunately for Grantham, his skepticism eventually proved well founded. In March, 2000, the dot-com bubble finally burst, and during the subsequent eighteen months the Nasdaq plunged about seventy per cent, inflicting huge losses on those who had got in near the market top. G.M.O.’s investments, which were positioned for the fall, actually made money during this torrid period, and the firm attracted a lot of new clients.
He also cited the real-estate bubble in the years leading up to 2007, when many big banks plunged into the business of cobbling together subprime-mortgage securities, only to get stuck with some of them on their balance sheets when the bubble burst and the securities became practically worthless. Initially, some of the banks had shied away from subprime, which involves lending to high-risk borrowers, but when they saw their competitors generating hefty profits, they felt obliged to join in.