Where We're Headed According To Bill Gross

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Where We’re Headed According to Bill Gross

According to the world’s biggest and (arguably) most successful investor
By Dr. Steve Sjuggerud, President, Investment U
Monday, March 17, 2003: Issue #222

The way I’ve found success in investing is to learn from the world’s best investors: to figure out what they’ve done and what they’re doing. So today we’ll take a look at what Bill Gross (quite possibly the world’s greatest investor) has to say about the market and where he’s putting his money.

Bill Gross is near the top of the list of investors that we need to pay attention to. Here’s why:

Bill Gross and the stock market have both returned investors an annualized 11% a year for the last 29 years. The thing is, Bill did it outside the stock market in bonds, with much less risk
Bill Gross is known as The Bond King for good reason his performance. Up 11% a year for his career, he’s only had 3 losing years in the last 29 years. (His worst year? He lost 3% in 1994).
He’s beaten the Lehman Brothers aggregate bond index an astounding 23 of the last 29 years. With a record like that, it’s no surprise that he may be the world’s largest investor, overseeing some $300 billion in bond investments for Pimco (www.pimco.com).

With a current column on the Pimco website and the cover story in this week’s Barron’s, Gross has been chatty lately. In the interest of protecting and growing our own wealth, let’s see what he has to say

What To Expect For Bond Returns:

“Just because a 20-year bull market in bonds is likely now complete, it is not necessarily the case that a new bear market has begun. While total returns should [approximately be 4-5%], the imminent demise of bonds just as investors are beginning to love them has been exaggerated.” – Pimco

What To Expect For Stocks:

“Double-digit returns for stocks will become a distant memory. Corporate bonds should offer returns comparable to stocks over the next few years with a lot less risk.” – Barron’s

Iraq:

“I speak now, and risk client, public, and press censure All would agree, especially since 9/11 that America has a right to defend herself. I’m also aware, however, of how absolute power corrupts and how we may be crossing a thin line” – Pimco

U.S. Economy’s Growth Prospects: “sub-par” – Pimco

Prospects For The U.S. Dollar:

“If we’re fortunate, the dollar’s slide will continue at a measured pace Gross says, instead of a panic fall. A panic could batter U.S. financial markets, since foreigners own 35% of U.S. govt. bonds, and 13% of U.S. stocks.” – Barron’s

Inflation Or Deflation, And What It Means For Us:

Gross contends “the U.S. is staring into the same deflationary abyss that has swallowed Japan.” He says “It’s quite possible that our [government's] reflation attempts will leave us at best with stagflation and at worst with an economy characterized by heavy job losses and continued debt liquidation.” – Barron’s

Gross paints a grim picture. But remember, he has a history of proven performance – from making money in all markets. What’s he doing with the money he manages today?

35-40% of the money is in corporate bonds (he likes these because they pay interest rates that are 2-3% higher than government bonds today). He has 30-35% in mortgages, which pay higher interest rates than government bonds also. And much of the rest is in foreign bonds that either pay higher rates of interest or offer him some currency diversification.

Having made money in 26 out of the last 29 years, Bill knows how to make money. It may be prudent for you to consider doing some of things he’s doing.

Good investing,

Steve

Today’s IU Crib Sheet

The “backdoor” to letting Bill Gross do all the investing for you – and avoiding Pimco’s big fees – is through the Fremont Bond Fund (symbol FBDFX). Minimum investment: $2,000. Learn more at www.fremontfunds.com.
To read the articles mentioned above in full, visit www.Pimco.com and pick up the current issue of Barron’s on your newsstand. Remember, the opinions above are Bill Gross’s, not mine. If you disagree with Gross, complain to him, not me!