In a letter to investors last week, Jeremy Grantham, the fund manager,
detailed his “long and ignoble history” of premature caution. This includes
betting against the “nifty 50” stocks two years early in 1972, against Japan
three years early in 1986 and against tech stocks in late 1997. He said he
got through all of those, though “not necessarily with the same clients we
started out with”.
Early bet
This is one of the pitfalls of managing other people’s money – those people
can be fickle.
Consider Michael Barry, the wildly successful investor featured in Michael
Lewis’s The Big Short, who made an early and aggressive bet against housing
and saw clients desert him. Similarly, Julian Robertson closed his Tiger
fund in 2000 after betting too soon against internet stocks.
Bill Gross, who manages the top-performing Total Return fund at Pimco, is
similarly trying his investors’ patience with an aggressive shift out of
government debt this year.
His already low 12 per cent weighting in government securities shifted to
negative 4 per cent recently while he pared his portfolio’s maturity
sharply. This has come amid an epic rally in the long end of the yield
curve.
Bond King
As he is nicknamed the “bond king”, a touch of schadenfreude is to be
expected. To his credit though, Mr Gross is sticking with the investment
thesis that the end of quantitative easing will create a buying vacuum,
though he has said that a new recession might alter his stance.
The evidence that Treasury yields are unsustainably low is as compelling as
that showing Japanese property prices and tech valuations were ludicrous -
but many prescient money managers were tossed overboard for refusing to
participate in those bubbles.
Pimco must hope that it has amassed enough goodwill to avoid charges of Gross
negligence while waiting for the market to turn.
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