Friday, October 22, 2010

Bill Gross's Worst Trades: Character Counts, Not Flash

Bond king, Bill Gross, recalls the worst trades of his career-- in 1974, two sins of omission with Wal-Mart and Berkshire Hathaway, and one sin of commission with Itell.


  1. I read Bill Gross's first book (about 20 years ago) a few years after it came out because of his outstanding record and was struck by how wrong he was on his economic outlook. I can't remember his exact views but it was equivalent to saying in the early '80s that inflation was going to stay high which would keep interest rates at high levels and stocks would not perform well etc. etc. He gave his expectations on the yield curve and on yield spreads.
    On the basis of this outlook he explained how PIMCO was invested. It was exactly the opposite of what happened and yet his performance was outstanding.
    In the clip it is interesting in how he turns a "worst trade" question into a "PIMCO is great" missive. I, for one, have never been impressed.
    Buffett is another interesting story. In his early years through a period where he attracted considerable money he ran (I know I'll offend some sensibilties here!) a black box investment approach as far as I can tell. In fact, in essence ( I could be wrong here and would like to know if I am) not much different from Madoff. The huge difference of course is that Buffett is the most moral guy in the world and Madoff is a psycho crook. But this is learned after the fact. When Buffett was earning extraordinary returns and taking on partners without explaining how he was investing he could of produced any kind of reports he wanted for his clients and taken them to the cleaners ala' Madoff.
    I find it interesting that we point to people and call them idiots for investing with Madoff and at the same time idiots for not investing with Buffett.

  2. My investing sins would take a lot longer to disclose than 2.5 minutes!

    I think my worst was a cruddy B2B company called Purchase Pro during the tech bubble. I was a young investor and bought that garbage around 60, and dumped it around 30. That company is gone now...

  3. Robert,

    Most of the gurus I've listened to over the years have gotten the macro picture consistently wrong, yet somehow still manage to make money. Gross and El-Erian have a very high opinion of themselves. Your point about Buffett is right on the money. He ran his investment partnership in the same blind way as did Madoff, only Buffett's returns were real and he seems to be a very honest guy overall.


    I'm ashamed to admit I bought AOL simply because it just kept going up and rode it through the Time-Warner merger. What a fiasco, but what a great lesson to learn at a young age.