Bill Gross is the Bond King.
For many of us, equities are our investments of choice, but it's easy to forget that the bond market is considerably bigger than the stock market, and can often outperform it for long periods.
And the biggest name in bond market investing is Bill Gross, head of Pacific Investment Management (PIMCO), which has assets under management of $841bn.
Background and early career
William H Gross was born in 1944 in Middletown, Ohio, and grew up there and in California. While studying for a psychology degree at Duke University, Gross was involved in a car accident, and while recovering he read a book on beating the odds in gambling.
This led him to organise gambling pools while studying at Duke, and he spent his summers at Lake Tahoe and Las Vegas, where he excelled at playing blackjack.
After graduating from Duke in 1966, Gross spend some time in the Navy, serving off the coast of Vietnam. This was followed by an MBA from University of California in 1971, after which Gross joined Pacific Mutual Life, initially working as an investment analyst. After a period managing fixed income securities, he founded PIMCO in 1982.
Investment style
Gross is not shy about the relationship between investing and gambling: "Basically, gambling and money management are pretty much the same. In each, the goal is to spread the risk and avoid becoming emotional while staying focused on the odds."
That understanding of the connection between risk and return is a key part of his outlook. "Risk and return are attached at the hip. You can rarely get high returns unless you increase your risk levels."
He is sometimes considered to be a trader rather than a long-term-buy-and-hold (LTBH) investor, because he is continually adapting to the evolving market situation and adjusting his portfolio accordingly, but I don't think that's a correct interpretation of his approach; ultimately his focus is on trying to position himself correctly for the long term.
"The long term is the right term. Short-term fixation on economic and market movements is confusing and often leads to emotional reaction to sell at bottoms and buy at peaks. By focusing on longer term, more stable trends (demographics, globalisation, political shifts) an investor gives himself a better chance to follow the right road map."
Portfolio changes should be made slowly and methodically, with an eye always on the cost of trading, and not being afraid to take big positions: "Good [investment] ideas should not be diversified away into meaningless oblivion."
Gross' analysis tends to be top-down, looking at macro trends and attempting to identify changes. He is wary of the idea that 'it's different this time', while always being on the look out for the time when it is actually different. There is a limit to what we can learn from the past -- "once you think you've found the answer, think again".
Current positions
Gross foresees a 'new normal' in the investment world over the coming years, characterised by lower growth, continued deleveraging, diminished property rights, and increased government intervention and regulation. In that possibly deflationary world we should be looking to "high quality bonds and steady dividend paying stocks".
Specifically, he has cut his exposure to mortgage-related bonds, in favour of longer maturity Treasuries. But long term he views the dollar as vulnerable, and sees future growth coming from Asia and Asia-related economies, such as Brazil.
Personally, Gross has one of the world's best collections of stamps, and gives generously to many charities.
In addition to his reacting to changes in the market, I think it's fair to say that the market often reacts quickly to his views.
Books by Bill Gross:
More investing greats:
John Bogle | George Soros | Ben Graham | Jim Rogers | Warren Buffett | Anthony Bolton | Jesse Livermore | Jim Slater | Charlie Munger | Peter Lynch | Carl Icahn | Philip Fisher | Ken Fisher | John Neff | John Templeton | Mark Mobius | Neil Woodford | T. Rowe Price | Bill Miller | Robin Geffen | David Dreman | Ian Rushbrook | James Montier | John Paulson | Seth Klarman | Martin Zweig | Crispin Odey | Wilbur Ross
Pop into the Fool's Gilts and Corporate Bonds discussion board.
