If Grantham is as right about the environment as he was about the Internet bubble, then we're all in a heap of trouble. In the late '90s, when tech stocks were skyrocketing and everyone and their cab driver were getting rich, he was practically yelling from the rooftops about the coming bust that would wipe everyone out.

It cost his firm - big. As investors turned away from his conservative philosophy and rode the bubble instead, GMO lost 45 percent of its assets under management at the time - but because of market conditions, the company ended up sinking only 33 percent, from $30 billion to $20 billion. Going against the conventional wisdom "brought the firm to its knees," Grantham remembers. He and his fellow managers were seen as fuddy-duddies who had lost their way, old-fashioned cranks who just didn't get the realities of the new Internet age.

But in 2000, when the stocks all came crashing down, his value-oriented philosophy got a bittersweet vindication. While the investors who had abandoned him were ­losing their shirts, those who had stuck with him emerged from the bust relatively unscathed. "We looked like heroes," he says. "But it was a pretty obvious bet. By any standard measure, everything was screaming at you to duck."

And that nicely sums up his approach to the markets. At any given moment, some asset classes may be rocketing to bubblelike proportions, and others may be out of favor and absolutely cheap. So buy the bargain, and don't shovel your money into assets that are already ridiculously expensive, because everything will eventually revert back to the mean.