But GMO saw bargains and predicted that emerging-market stocks would return 9.4% annually above inflation in the next 10 years. The stocks did even better, returning 11.4%.

In 2001, the S&P 500 was sinking, but many investors still expected the benchmark to deliver the historical annual average of around 10%. GMO took an extremely bearish view, arguing that the S&P was wildly overpriced and would lose 1.0% annually after inflation. For the decade, the index returned 0.4%.

In his Chicago speech, Grantham told the audience to invest in resources such as oil and potash. He said the world is facing a huge shortage of land and commodities. "We are losing the ability to feed poor countries as we sit," he said.

Grantham said that prices of commodities had trended down for 100 years as mining and production facilities became more efficient. The decline stopped 10 years ago, and prices began skyrocketing. "The price of grain, fertilizers, metals, energy, oil, coal -- they all tripled," he said.

While some analysts have argued that the rise in commodities represents a temporary bubble, Grantham said prices would continue climbing because of rapidly growing demand from China and India. Last year China alone consumed 53% of all the cement used in the world and 47% of the coal.

"China has been growing at 10%," Grantham said. "That doubles demand in seven years, and quadruples it in 14 years."

Grantham cautioned that a bet on resources would not necessarily produce big gains in the next year. But by waiting patiently for years, investors should be rewarded.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.

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