In Mar this year, the world most prominent bond fund manager, Bill Gross, dumped all his exposure to U.S. government holdings in his more than $240 billion Pimco Total Return Fund, the largest bond fund in the world. His rationale: Who Will Buy Treasuries When The Fed Doesn’t?
To give you some background about Bill Gross. Morningstar named Mr. Gross and his investment team “Fixed Income Manager of the Decade” for 2000-2009 and Fixed Income Manager of the Year for 1998, 2000, and 2007 (the first three-time recipient).
He received the “Bond Market Association’s Distinguished Service Award” in 2000 and became the first portfolio manager inducted into the Fixed Income Analysts Society’s hall of fame in 1996.
However, this bet does not seem to work well. At the end of Aug, Bill Gross has admitted that “it was a mistake to bet so heavily against the price of US government debt”. Below is a chart comparing Pimco Total Return Fund and Spdr Barclays Aggregate Bond ETF (which is tracking Pimco Total Return Fund’s benchmark).
The reason of the underperformance, as we all know, was due to investors to rush to the safety of government bonds,
So what are the lessons for investors?
Lesson 1: Even the most gifted investment guru could be wrong.
Investors should stop seeking prophesy from newspapers, magazines, or some “investment gurus”. Nobody knows the future. Whenever there is market crashes or some IPO shot up to the sky. Some people will jump in front of you and say “Hey, I told you!”.
I always ask these people one question, “so did you profit from it?” Most of the time, I will get a silence. As I always quote this to my client, “Even a broken clock is correct twice a day“.
Lesson 2: If you made a mistake in investing, don’t grieve or regret. Correct your mistake, gear up and move on
You may lose a battle, but don’t lose the war! In investment world, it does not matter whether you are right or wrong for now. The most important thing is, can you make money in the long run?
Bill Gross has scaling back bets against the value of US government debt since May. Look at his PIMCO Total Retrun fund, if you were investing US$10,000 with Bill Gross since the fund started, you money will have become $71,028 as July 2011. That is 710% return! I am sure Bill Gross has made some other mistakes during the years. but does it really matter?