Reinvesting When Terrified
Jeremy Grantham · 2009
"In a crash the real danger is not buying too early but freezing entirely; the cure is a reinvestment plan decided in advance."
In March 2009, with markets in free fall, Jeremy Grantham warned that the danger wasn't buying too early — it was “terminal paralysis.” Investors sitting on cash would keep waiting for the bottom and miss the recovery entirely. In a panic, he argued, the failure to act costs far more than acting imperfectly.
Grantham's diagnosis was behavioral. Every decline makes cash look more beautiful, until inertia “sets like concrete”: those who are fully invested go catatonic, and the few who are sitting in cash don't want to surrender the comfort of having been right so far. Both groups freeze at precisely the moment prices are most attractive. His cure was procedural rather than analytical. Build a battle plan for reinvestment before the crisis, get your investment committee to buy into it while markets are calm, then execute it mechanically — a few large steps rather than many small ones, because every act of buying in a panic has to overcome the same paralysis.
According to Grantham, what is the only cure for “terminal paralysis” in a market crash?
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The explanation above is written with AI assistance. These are the originals — go to them to check it.
- Reinvesting When Terrified — the original GMO letterGMO
- Related Klarman essay: The Forgotten Lessons of 2008Farnam Street
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