Be sure to take a long-term view when you see the odds of winning in your favor. The losses caused by short-term bad luck will be evened out because the long-term trend is in your favor.
—Bill Gross
In bond investing, for a long time there was only one king. He managed the world's largest bond fund and promoted the development of the world's largest bond asset management company. He is like a mountain, standing above all bond investors. Once, every word he said about economic judgments affected market fluctuations.
He is the former chief investment officer of PIMCO - Bill Gross, known as the "King of Bonds".
01 Small gamblers have great wisdom
Gross was born in a well-to-do family in the middle of the United States. Although he is introverted and known as a lone ranger, he has a very strong heart. In college, under the coaxing of friends, he made a bet and ran from San Francisco to Carmel, California. In order to win the bet, even though one of his kidneys had ruptured in the last five miles, he continued to run. Within six days, he ran 125 miles (about 200 kilometers), and was immediately arrested after running. Into the hospital.
This strong desire to win made him focus on everything he did. Friend and financial writer for MSN Money Timothy Middleton described the techniques that earned Gross the crown all have one thing in common: strict and focused self-demand.
In his graduation year, a car accident changed Gross' fate. When he was hospitalized, he read the book "Beat the Dealer" (Beat the Dealer) by Edward O. Thorp, a professor at the University of California, which taught people to win the blackjack poker game by counting cards. After he was discharged from the hospital, he took two hundred dollars to the casino to try his hand.
In order to save his gambling money as much as possible, he lived in an Indian restaurant that cost only six dollars a day, and walked to the Four Queens casino (Four Queens) on the Las Vegas Strip every day to find free food.
In the beginning, Gross often had trouble concentrating; sometimes bad luck, without a win for hours, or even a day or two, would make him too frustrated to return to the table. Sometimes, he often plays a few hands here, and then changes to another table, or observes around, which dealer is more likely to bring good luck.
Later, he discovered that changing the gaming table all the time, it is impossible to remember which cards the dealer has played, and it is impossible to predict which cards are still in the card box. Also, pauses interrupt the rhythm and concentration of gambling.
Therefore, Gross decided to fight for a long time, staying at the gambling table for sixteen hours a day, gambling for four months. In the meantime, even if he lost a big bet, he never quit, stayed in the game, and bet with two dollars. In this way, the original two hundred dollars was multiplied fifty-fold to ten thousand dollars.
"I know from the gambling table that when you see the chance of winning in your favor, you must take a long-term view. The losses caused by short-term bad luck will be evened out because the long-term trend is in your favor." Gross Wu I realized that even if you make a mistake, as long as the number of times you are right is more than the average, you can beat the dealer.
02The first person to trade bonds
The "long-term view" developed by Gross from the poker table is also the main axis of his later investment strategy: using a long-term view to defeat greed and fear in human nature.
With a long-term thinking framework, at the age of 28, he found his first job: a bond analyst for Pacific Insurance Company.
At that time, bond investment was regarded as an investment tool for "orphans and widows receiving interest", which was unremarkable. Because the inflation rate in the United States averaged only 0.65% per year for more than a hundred years before that, and bond prices never fluctuated. Investors who buy bonds only need to cut off the coupons regularly, send them back to the company that issued the bonds, collect the interest, and get back the principal when it matures.
However, things have changed. In the 1960s, inflation started to rise gradually from 1% to 6% in 1970. Prices have risen, the interest on bonds can no longer cover the living needs of orphans and widows, bonds no longer maintain their value, and prices have fallen sharply, or even cut in half!
The "current situation" has appeared, but "heroes" are needed to create the current situation. Gross, became the first person to trade bonds, rewriting history.
A low-competition market, encountering young adventurers, and changes in the general environment, so the bond king was born.
"His greatest contribution to the investing world was to see that bonds could be traded, not just held," commented economist and former Federal Reserve member Peter Bernstein. Two years ago) the theory of new forms of bond trading has only just come out, but Gross has begun an active investment strategy... he can be called the vanguard of active fixed income management."
03 Seize the opportunity and not relax
Once a long-term trend is identified, Gross waits for the opportunity to make big bets. In September 1981, he successfully captured the bulls in the bond market for the next two decades and fought a beautiful battle.
At that time, severe inflation was caused by the oil crisis, and the Federal Reserve raised interest rates by more than 15%. Gross judged that the probability of interest rate cuts in the "next three to five years" was much higher than that of interest rate hikes. He began to gradually increase long-term bonds. After the model Calculate the risk and confirm that the probability of interest rate cut is the highest, and the layout is completed. Two months later, the Fed actually started cutting interest rates. The following battles, such as the Russian financial crisis in 1997 and the U.S. stock technology bubble in 2000, were the same.
Arranging early has paid off for Gross every time.
The performance of beating the market for a long time made Germany's largest insurance group Allianz Group (Allianz Group) decide to buy Pimco in 2000 and keep Gross at a "golden handcuffs" price of 200 million U.S. dollars for five years , making him the highest paid bond fund manager at the time.
04 Gross' investment philosophy
Gross is known for being willing to change direction as the market shifts. His views on the bond market are widely followed by professional investors and the investing public around the world.
Gross believes that the first step to success is to form his own long-term analysis, keep pace with the world economy, be familiar with the interest rate environment, politics and economics, and track industry trends. He recommends reading a wide range of books, arguing that investors should ground themselves in modern financial history, recognizing the patterns of human behavior that have been documented and the facts that they have documented.
The second step is to measure the degree of risk tolerance. You must consider your age and income dependence on securities investment, and adjust the percentage of the flexible part of the securities portfolio held. For example, prepare some reserves, that is, the money you need to completely avoid risks, and put it in another account; at the same time, keep 30% of the securities portfolio with large trading volume and high risk in the securities account.
The third step is the total return strategy. That said, one has to convince oneself that basically anything one owns at any moment can be sold because there are other things that offer better relative value. The implication is that the decision to sell a security implicitly depends on the decision to buy something better.
05 Epilogue
The investment market is like the largest gold mine in the world. This gold mine is open every day, and everyone can enter the market to see what's going on. However, when the bell rings for the end of the day, there is always someone who goes from pauper to prince, or from prince to pauper. The key is only: who can defeat themselves.
Gross is the one who defeated himself and turned from a small gambler to an investment king.
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