Bill Gross: Am I A Great Investor?

This month’s investment outlook by Bill Gross isn’t so much an outlook as it is an introspection.  The letter is a deeply thoughtful piece about just how good “great” investors really are.  He asks an important question – are great investors merely lucky or good?  Are they beneficiaries of a bit of luck and a fruitful investment period?  This one’s worth a read:

So time and longevity must be a critical consideration in any objective confirmation of “greatness” in this business. 10 years, 20 years, 30 years? How many coins do you have to flip before a string of heads begins to suggest that it must be a two-headed coin, loaded with some philosophical/commonsensical bias that places the long-term odds clearly in a firm’s or an individual’s favor? I must tell you, after 40 rather successful years, I still don’t know if I or PIMCO qualifies. I don’t know if anyone, including investing’s most esteemed “oracle” Warren Buffett, does, and here’s why.
Investing and the success at it are predominately viewed on a cyclical or even a secular basis, yet even that longer term time frame may be too short. Whether a tops-down or bottoms-up investor in bonds, stocks, or private equity, the standard analysis tends to judge an investor or his firm on the basis of how the bullish or bearish aspects of the cycle were managed. Go to cash at the right time? Buy growth stocks at the bottom? Extend duration when yields were peaking? Buy value stocks at the right price? Whatever. If the numbers exhibit rather consistent alpha with lower than average risk and attractive information ratios then the Investing Hall of Fame may be just around the corner. Clearly the ability of the investor to adapt to the market’s “four seasons” should be proof enough that there was something more than luck involved? And if those four seasons span a number of bull/ bear cycles or even several decades, then a confirmation or coronation should take place shortly thereafter! First a market maven, then a wizard, and finally a King. Oh, to be a King.
But let me admit something. There is not a Bond King or a Stock King or an Investor Sovereign alive that can claim title to a throne. All of us, even the old guys like Buffett, Soros, Fuss, yeah – me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience. Since the early 1970s when the dollar was released from gold and credit began its incredible, liquefying, total return journey to the present day, an investor that took marginal risk, levered it wisely and was conveniently sheltered from periodic bouts of deleveraging or asset withdrawals could, and in some cases, was rewarded with the crown of “greatness.” Perhaps, however, it was the epoch that made the man as opposed to the man that made the epoch.

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • BHB

    Completely agree that 40-50 years of unfettered credit creation have helped the Buffett, Grosses, Granthams of today. However, there are very few that had the investment acumen or ambition to take advantage of the favorable conditions of the same debt supercycle. So good points from Gross but give these great investors props for reaping the rewards instead of sitting on the sidelines.

  • The Undergrad

    Gross, joining the likes of Crispin Odey and Hugh Hendry in channeling an existential ennui.

  • Judson

    In wish he would have mentioned Grantham more, he really is one of the greats.

  • Explorer

    I sometimes think that there are so many people doing so many different things that whatever happens there will be some successful people, and if that thing that made them successful continues they will be successful over a long period.

    So being a bond fund manager over a 30 year bull market in bonds tends to support your success.

    Being in the Fire economy as it has grown to a very large share of the economy has also supported success.

    On the other hand, those who had manufacturing businesses but didn’t have the scale to move production offshore have suffered greatly in many developed countries, as have their employees.

    Having said that there are people who stand out in any industry and who do better than most and while maybe they are just a unique series of 20 heads in a row, I’m happy to grant that they have a brains, interpersonal skills, analytical abilities and grit way beyond the average.

  • Boston Larry

    Nearly all the bond fund managers were looking brilliant over the past 3 weeks as Treasury bonds rallied so strongly. Gundlach, Gross, and even Hoisington are all looking great after this bond rally. It is hard to believe that after a 31 year bull market long T-bonds still have some life in them!

  • Geoff

    Hasn’t Gross been a bear on bonds?

  • John

    I think Bill Gross brings up a legitimate question and it’s one I have actually pondered myself. Are many of these guys really that good or did they just happen to be in the right place at the right time in history given what their overall investment beliefs, style and approach is. I’m not trying to marginalize anyone but I think he raises a legitimate question and I wouldn’t be to quick to discount his point of view.

  • Steve Roth

    Very good. Worth remembering (cf Gladwell’s “Outliers”) that an oddly disproportionate percentage of the richest people ever were born between 1831 and 1840. Followed only by the cohort born in the mid 50s.

    If you started buying long-duration 30-year bonds in the 80s, and turning them periodically as they shortened, picking up new ones, you got very rich. Genius? Right place right time?

  • Cowpoke

    “reversion to the mean.”

  • Cowpoke

    Look towards politics now. I think the next 50 Years will be HEAVILY POLITICAL.
    A lot of retire folks looking to band together to game the political spectrum.

  • Cowpoke

    John, That post is precinct spot on. I could pick my nose in the early 2000’s bull run and I did VERY WELL.. My philosophy worked out.

    This last run I have not done as well because my philosophy has changed. However so has life’s challenges but that’s besides the point. people do change strategies because of life situations.

  • http://pragcap Michael Schofield

    No one lobbies the govt more heavily or effectively than Big Money. Someone needs to give those people some competition.

  • http://pragcap Michael Schofield

    We’re always dealing with a sample size of 1…technology to study parallel universes not yet available…may never know if you’re lucky or good