That instinctive caution has led many to tag Grantham a "permabear," someone who's always pessimistic about the markets. He's not a fan of the term, though. A worrier, maybe: He does think we're in the middle of a long-term bear market, one that started in 2000 and that may not end until 2010, at the earliest. But according to Grantham, he's just calling the market as he sees it. If an asset class is in a bubble, he'll say so. And right now, a lot of different assets are looking awfully pricey. Stocks, bonds, real estate - generally speaking, all are valued higher than they should be.

Looking Ahead: Where to Place Your Bets
That's not to say there aren't wise investments to be made, says Grantham. One of the best at the moment? Boring old cash. Fixed-income investments (bonds) are also looking more attractive than they have been, and Treasury Inflation-Protected Securities are fairly valued. Emerging markets - developing countries like India, China, Brazil, and so on - are probably the best long-term bet in equities, and they're relatively cheaper than U.S. stocks.

His biggest idea for the moment: that superhigh-quality investments - perennial market powerhouses like Johnson & ­Johnson, for instance, pose little risk and have a solid record of churning out big profits year after year - are a much better value than riskier ones. Because right now what he calls the "risk premium" is "the lowest you'll ever see in your lifetime." In other words, you're not getting a discount to take risks with your money, as you normally would. When this is the case, you should buy the big, proven moneymakers instead of the fluctuating small-cap growth stocks, because you're getting them at a bargain.