If markets were like coin tosses (or perfectly efficient), you’d expect a two standard deviation event to happen every 44 years, says Grantham. As it stands, GMO reckons they happen in markets every 35 years. That makes sense if you believe that investors are not as narrowly rational as they’re cracked up to be, and that emotion-led manias are regular occurrences.

Now, however, we’ve gone even beyond the “normal” bubble. Instead, says Grantham, the US specifically is in a “super bubble”, having moved three standard deviations from the trend.

This is the sort of thing that should only happen once every 100 years. It’s not quite that rare, but Grantham reckons it’s only been seen on five other occasions: US stocks in 1929 and 2000 (the tech bubble); US housing in 2006; plus Japanese stocks and property in the late 1980s.

“All five of these greatest of all bubbles fell all the way back to the trend.” Grantham notes that if the S&P 500 does the same from here, it could end up dropping to 2,500 (it’s currently around 4,500).

First, as I always say, don’t panic. Apart from anything else, why would you? You’re sensible enough to be diversified. Diversification is key to smooth out any increase in inflation and market corrections. Ensure that your portfolio reflects your strategy and investment goals.

Money Week