Go to the Globe and Mail homepage

Jump to main navigationJump to main content

The Lunch

The obsessive life of bond guru Bill Gross Add to ...

The path toward finance began with a near-death experience. A bad car accident in his final year in college sliced off much of his scalp. As he recuperated, he read a book which became a cult favourite among investors: Beat the Dealer by Edward Thorp, then a math professor.

The book detailed how to win at blackjack by using a system for counting cards. After Mr. Gross recovered, he hopped a freight train to Las Vegas. Over the next four months, playing 16 hours a day, he turned $200 into $10,000.

He began thinking about the future. "I said, well, I obviously enjoy mathematical application of a system of some sort, and hard work, and diligence," he remembers, his sandwich and water still untouched. "What's the adult form of gambling? It's the stock market. Maybe you can't outfox it, but let's see if it can be done. Right then and there I said, 'I'm getting into the money management business.'"

He couldn't get a job working in stocks, so he started as a credit analyst at an insurance company in Newport Beach. Part of the job involved physically clipping bond coupons to receive the associated interest payments.

Needless to say, Mr. Gross had bigger plans. Pimco got its start in 1971 under the insurer's umbrella. Two years later, when Mr. Gross's parents visited, he informed them he was going to be the best bond manager in the world. "Of course, they looked at me and said, 'What's that?'" he recalls, laughing.

Rather than simply hold bonds, Mr. Gross pioneered ways to trade them, generating fat profits. He employs complex mathematical tools but excels at making big-picture assessments of economies, markets and governments, which then direct his bets.

"He seems to be able to make macro judgments about what's going to happen ahead of time, with a better batting average than chance by a significant amount," says Mr. Thorp, now a successful hedge-fund manager. The two men have lunch from time to time.

Mr. Gross "has never been complacent," adds one former colleague. He "made sure he was a step ahead of the average investor in identifying potential land mines."

Pimco, meanwhile, has become a colossus - indeed, some consider it too big. Its headquarters consists of two unremarkable buildings across from a shopping mall. Inside, it is well-appointed but not opulent (hedge funds a tiny fraction of Pimco's size have offices with more bling). It opened an office in Toronto in 2004 and plans to bring its mutual funds directly to Canadian investors.

Do obsessive 66-year-olds ever retire? If they're asked to, Mr. Gross says, naming other investing legends - Warren Buffett is 80 - who are still hard at work.

"I like to think that I could recognize it in myself that I've lost it, but most of the time you don't," he says, laughing heartily.

"I hope not to abuse the privilege of being one of the founders and therefore not being tapped on the shoulder when the time is right," he says. "But I think we're doing fine."

______

BIOGRAPHY

William Hunt Gross

Born in 1944, 66 years old

Educated at Duke University; MBA from the University of California, Los Angeles

Served in the U.S. Navy during the Vietnam War

Married, three children

Hobbies: reading, collecting stamps, playing golf

In 1971, helped found Pacific Investment Management Co.; as of this June, it managed $1.1-trillion (U.S.)

Manages Pimco's Total Return Fund, the largest mutual fund in the world, with $252-billion in assets

Shares the title of chief investment officer at Pimco with Mohamed El-Erian, formerly an official at the International Monetary Fund and head of Harvard's endowment

Has contributed millions to stem cell research, local hospitals, and Doctors Without Borders

On growing up

Even though your parents are dead, you're still looking over your shoulder saying, 'Mom or Dad, are you proud of me?' It's ridiculous when you're 66. For the most part, you grow up. You do make the transition. But all these obsessions along the way are really attempts for love and attention.

On whether bonds' best days are over

It is disheartening to some extent, but to be fair, I started in the midst of the beginning of one of the worst bear markets [for bonds]all the way until '81… I had a good first eight years in which I was smacked in the face with the reality that bonds can go down in price as well as up, so I don't forget that.

On getting out of the crisis

Ultimately the question becomes how many checks do you have to write, and how many checks can you write. A lot of people say you can't solve a debt crisis with more debt. You have a big contingent there. Then you have the other contingent… that would say as long as the dollar is the reserve currency, and as long as the Fed can write checks, then we can do anything we want to do. These are the balls that you juggle.

Single page

Follow on Twitter: @jslaternyc

 

More related to this story

Topics:

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories