Tags: Gross | legends | credit | expansion

Pimco’s Gross: What Makes an Investing Legend

By Dan Weil   |   Wednesday, 03 Apr 2013 12:43 PM

Pimco Co-Chief Investment Officer Bill Gross makes a pledge of humility for himself — and other investment legends — in his latest monthly commentary.

The legends have benefited from a favorable backdrop of credit expansion, he writes.

“There is not a Bond King or a Stock King or an Investor Sovereign alive that can claim title to a throne,” Gross says.

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“All of us, even the old guys like Warren Buffett, George Soros, Daniel Fuss [runs the Loomis Sayles Bond Fund], yeah — me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience.”

How is an investing legend defined?

“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,” Gross maintains.

“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.”

So what has made the luminaries’ investing era been so blessed?

“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,’” he explains.

“Perhaps, however, it was the epoch that made the man as opposed to the man that made the epoch.”

To be sure, there do seem to be some guidelines that form a reasonable basis for judgment of investment managers during periods of say 10 years or more.

Gross mentions one himself – how managers fare in up and down markets. If a manager is able to outperform in both bullish and bearish environments, it’s hard to argue he/she’s not doing something right.

Investment managers can’t choose their investment environment, they can only choose how to deal with it.

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