The bond king

Written by William H Gross | Updated: May 24 2009, 07:14am hrs
William H Gross or Bill Gross was born in 1944 in Ohio, USA. He is a financial manager and an investment author. He is considered to be one of the worlds largest mutual fund managers and as the founder and managing director of the PIMCO family of bond funds, he and his team of bond professionals have more than $600 billion in fixed income assets under management.

Gross served in the Navy, completed his MBA from the University of California and even played blackjack professionally in Vegas, where he learnt quite a lot about calculating odds and spreading out ones risk. In 1996, he was the first portfolio manager inducted into the Fixed-Income Analyst Society Inc (FIASI) hall of fame for his major contributions to the advancement of bond and portfolio analysis. He is the co-founder of Pacific Investment Management and manages their Total Return Fund, which is the worlds largest bond fund and the 5th largest mutual fund in the world.

Even amidst the recent chaos, by holding large positions in agency-backed mortgage bonds of Fannie Mae and Freddie Mac, he made $1.7 billion during the Federal takeover. Forbes had ranked him 897 on the worlds richest persons in 2007. Describing his investment style in an October 2005, commentary piece, MarketThoughts.com editor, Henry K wrote that Bill Gross believes that successful investment in the long-run (whether in bonds or equities) rests on two foundations: the ability to formulate and articulate a secular [long-term] outlook and having the correct structural composition within one's portfolio over time." Gross describes these foundations as having a three- to five-year forecast that forces an investor to think long term and to avoid the destructive emotional whipsaws of fear and greed." He clearly states that such emotions can convince any investor or management firm to do exactly the wrong thing during irrational periods in the market."

William Gross has also written two books: Everything You've Heard About Investing Is Wrong! and Bill Gross on Investing. Another book published about him in 2004 was Bond King: Investment Secrets From PIMC's Bill Gross by Timothy Middleton.

* The current, rather mild US recovery has been driven by asset appreciation/consumption and not employment or capex [capital expenditure] growth. Future growth is dependent on additional asset appreciation in real estate and stocks if Asia continues to absorb much of our investment and many of our jobs.

* That is not to say that long government bonds won't go up in price if the 'system' suffers some elimination, slower growth, or to be frank, a recession in 2006.

* A bullish orientation towards the front-end of the curve therefore should begin to dominate bond strategies, combined with an avoidance of anything that carries those low-risk premiums that Greenspan finally diagnosed. Those assets include real estate, equities, high yield, corporate, and some areas of emerging-market debt.

* At some point down the road, in a dynamic economy such as the US, we should be returning to a more normal shape. That means ultimately short rates and the front end of the curve will trade at lower yields than long rates.

* This is a market of disparate opinions and therefore increasing opportunities for those who get it right. We hope to be one.

* Were watching the daily statistics in terms of retail confidence and housing.

* [Emerging-market bond funds did well this quarter, up 3.6% on average, for the same reason as emerging-market stocks. As commodity prices rose, money from the developed world flooded such commodity-rich countries as Russia and Brazil, strengthening their fiscal balance sheets and the credit quality of their bonds. Consequently, investors became less fearful of owning them.] Many so-called emerging markets have long since emerged, ... Russia now has an investment-grade credit rating and with oil where it is right now, probably more money in the bank than the US.

* Too much debt, geopolitical risk and several bubbles have created a very unstable environment which can turn any minute. More than any point in the past 20 or 30 years, there's potential for a reversal.

* With all this consumer debt, business debt, government debt, smaller movements in interest rates have a magnified effect... a small movement can tip the boat.

* It any wonder that in the space of the last six months we have had headline speeches promoting the dangers of deflation only to be followed by fears of accelerating inflation

* Debt and lack of pricing power is a dangerous combination. Gasoline and a match fall into the same category.

* So, the lower inflation goes and the more and more investors believe that inflation will stay low, the better it is for the bond market.

* We have a tug-of-war, really, between a domestic economy and a global economy.

* Finding the best person or the best organization to invest your money is one of the most important financial decisions you'll ever make.

* Do you really like a particular stock Put 10% or so of your portfolio on it. Make the idea count Good [investment] ideas should not be diversified away into meaningless oblivion.