Bill Gross

Bill Gross

Date of Birth: 13.04.1944
Country: USA

  1. Bill Gross: The Warren Buffett of the Bond World
  2. Biography of Bill Gross

Bill Gross: The Warren Buffett of the Bond World

Bill Gross is an American financier who is widely regarded as the most successful investor in the fixed-income market today. As the founder and managing director of Pacific Investment Management Company (PIMCO), he manages the $96 billion PIMCO Total Return Fund, as well as several other smaller funds. Total Return is the largest bond fund in the world and the fifth largest mutual fund overall. However, it is not just the fund's size, but also its consistently impressive results since its inception in 1987 that have made Gross one of the most prominent figures in the financial world. Over the past decade, the fund has averaged a return of around 8.3%. It is no wonder that The New York Times has called Gross "the most prominent of American bond investors." In December 1996, he became the first portfolio manager to be inducted into the Fixed-Income Analyst Society's Hall of Fame for his significant achievements in financial analysis and portfolio management. Morningstar, a mutual fund tracking agency, awarded Gross the "Fixed-Income Manager of the Year" title twice, in 1998 and 2000, making him the first to receive the award more than once. Morningstar noted that Gross earned this distinction by demonstrating "excellent investment skill, the courage to go against the consensus, and a commitment to shareholder interests necessary to achieve outstanding long-term results." In December 2001, SmartMoney magazine named Gross one of the 30 most influential figures in the investment community.

Gross has written two books on investments: "Everything You've Heard About Investing Is Wrong!" (1997) and "Bill Gross on Investing" (1998). He is also the author of numerous articles on the bond market, frequently appears in various media outlets, and publishes a monthly investment forecast on PIMCO's website. He is a member of the Los Angeles Society of Financial Analysts. According to Forbes, Gross ranked 322nd in the United States in terms of net worth in 2006, with a fortune of $1.2 billion. Since 2000, his annual compensation package at PIMCO has amounted to $40 million. Gross is known for his competitive nature and determination. He once ran six marathons in six days, and in 2003, he advanced to the final round of the AT&T Pebble Beach National Pro-Am golf tournament. Yet, this natural-born winner admits that he is still amazed at the path he has taken to become the world's largest bond manager.

Biography of Bill Gross

William Hunt Gross was born on April 13, 1944, in Middletown, Ohio, a town dominated by the steel company American Rolling Mill Co., Armco. His father, Sewell "Dutch" Gross, worked as a sales manager at Armco, while his mother, Shirley, was a homemaker. He had two siblings, an older brother named Craig (now the owner of a food distribution company in California) and a younger sister named Lynn. In 1954, Gross Sr. was transferred by Armco to San Francisco to promote the company in the rapidly growing markets of California and Japan. Gross was fascinated by the size of the city, which seemed like "another universe" to him. In 1962, he received a scholarship from Duke University in Durham, North Carolina. Gross admits that he went to Durham without any idea of what he wanted to study and chose psychology because he had always been interested in how the human mind works. Standing at six feet tall, he hoped to become a player for Duke Blue Devils basketball team but was soon disappointed and had to settle for playing on the college team. However, Gross actively participated in the Phi Kappa Psi fraternity, where he earned the nickname "Hatty" because of his shoulder-length reddish-brown hair. Andrew Ash, another former member of Phi Kappa Psi, recalls that even back then, Gross was constantly coming up with various money-making schemes. He organized a betting pool as a bookie, earning around $100, and formed a three-person poker team called "The Syndicate," hoping that playing together and distributing the risk would increase their earnings.

Gross considers his financial career to have started in Las Vegas, at the blackjack table. He first encountered the casino industry in the summer of 1965 while working as a slot machine operator in a small town in Nevada, earning $5 per hour. Although he quickly became interested in gambling, he did not play that summer to save money. He slept in his car, washed up in the lake, and shaved at a gas station. It wasn't until the following spring that he made his first attempt to gamble, with $50 in his pocket, and "lost it all on one bet because [he] didn't know the rules." Upon returning to college, Gross bought a book called "Beat the Dealer" by Edward Thorp, a best-selling book on blackjack strategy. Thorp, a mathematics professor at the University of California, had developed a card-counting technique for blackjack and applied these strategies to stock market investing, creating a hedge fund. Gross was enthralled by Thorp's ideas and played thousands of games against himself as practice. After graduating in May 1966 with a Bachelor's degree, he went to Las Vegas with $200 in his pocket, stayed at the Indian Hotel for $6 per night, and played for 16 hours a day. Within four months, his $200 turned into $10,000. It was his first taste of real money.

Gross believes that his brief period as a professional blackjack player was critical to his career because gambling has a lot in common with money management. In both cases, the goal is to properly allocate risk, calculate future moves, and avoid emotional decision-making, focusing on the bets at hand. As Gross said in an interview, Las Vegas taught him that he "can beat the system through a combination of hard work, ideas that no one has thought of yet, and the ability to endure the daily grind that others will undoubtedly find tedious." Soon after his time in Las Vegas, in October 1966, Gross began a three-year stint in the military. He aspired to become a fighter pilot but did not possess the necessary qualities and was assigned as an assistant engineer on a destroyer stationed off the coast of Vietnam. According to Gross, he was never less suited for a job than before or after his military service.

After being discharged in late 1969, Gross used his winnings to attend the Graduate School of Business Administration at the University of California, Los Angeles. By that time, he had read Thorp's second book, "Beat the Market," published in 1967, and dreamed of a career developing stock market investment strategies. In 1971, he earned a Master's in Business Administration and sent out over 100 resumes to investment firms, but initially, there were no results. The stock market was going through a tough time. Eventually, Gross's mother noticed an advertisement in the Sunday Los Angeles Times that Pacific Mutual Life Insurance Co. was looking for a securities analyst with an annual salary of $11,000.

Gross got the job, although it did not match his expectations. Instead of analyzing stocks, he was assigned to coupon stripping, which involved redeeming interest payments on Treasury securities in the bond department. It was during this time that he met James Muzzy and William Podlich, and the three of them convinced Pacific Mutual to entrust them with managing $5 million in bond assets. Gross became the portfolio manager, Muzzy handled marketing, and Podlich handled administration. According to Muzzy, their trio's success was primarily due to each person bringing something unique to the table. From the beginning, Gross stood out as the one possessing the qualities required for portfolio management, namely the ability to make quick and decisive decisions. Their collaboration proved strong, and both Muzzy and Podlich currently hold leadership positions at PIMCO.

Upon taking over the fund, Gross quickly realized that he would never make significant money on bonds by just coupon stripping. He needed capital gains in addition to interest payments: total return. He had to become a trader rather than a "buy and hold" investor. In 1973, despite the resistance from clients, Gross began trading in higher-yielding securities such as Government National Mortgage Association (Ginnie Mae) certificates as he believed their prices would rise once interest rates decreased – he turned out to be right. In 1987, when PIMCO's assets had grown to $20 billion, Gross launched his flagship fund, the Total Return Fund.

Gross's fund's successes, high returns, and consistent growth have significantly increased the attractiveness of fixed-income securities in the eyes of mutual fund investors. According to Micah Green, the president of the Bond Market Association, Gross's name can be seen as "symbolic in terms of rekindling interest in the bond market." On the other hand, Gross has the power to shape the market's rules with his actions, as they can significantly impact the positions of major US companies. For example, in March 2002, he sold all of PIMCO's commercial paper holdings in GE Capital, the financial arm of General Electric (GE), for $1 billion, stating that the company was taking unnecessary risks due to its excessive short-term debt obligations. After receiving a stern warning from Gross, GE capitulated and began replacing a significant portion of its commercial paper with longer-term debt, prompting PIMCO to resume buying its securities.

Gross's best investment decision came in 2000 when he purchased long-term Treasury securities before the government, flush with surplus funds, started retiring them. Within a few weeks, Gross's traders bought $5 billion worth of long-term Treasury securities on his orders. By the end of the year, PIMCO's bond funds had earned around $200 million from the appreciation of these securities. On the other hand, his worst decision was buying bonds from the energy company Enron in 2001, just before the scandal broke out, making their bonds worthless. However, such missteps have been rare in Gross's career. While many companies may have positive average returns over the long term, their performance is often masked by sharp fluctuations, but PIMCO is not one of them.

Gross manages the largest bond fund in America from his office in Newport Beach, California, thousands of kilometers away from Wall Street. His workday begins long before he arrives at the office. The first thing he does when he wakes up around 4:30 am is monitor the current market situations, including Europe and Japan, and review economic reports that provide insights into the economic conditions influencing bond prices.

Gross believes that eliminating noise and minimizing the flow of information are critical factors for a portfolio manager. He doesn't read email messages unless they are essential, only answers the phone three to four times a day (excluding calls from his wife), and doesn't use a mobile phone. His motto is, "I don't want to be connected—I want to be disconnected."

Interestingly, Gross claims that the most important and valuable part of his workday is not spent in the trading room. Every day, between 8:30 am and 10 am, he visits a health club near the office, where he practices yoga. Gross insists that many of his best ideas, including his best decision in 2000, came to him when he was literally standing on his head, away from office noise and trading terminals.

Gross is a staunch advocate of the top-down investing approach, which involves considering macroeconomic trends, followed by sector analysis, and then selecting specific investment opportunities. In an article published in the Financial Analysts Journal in 2005, he emphasized the critical role of this approach.