Bill Gross, the world's most important investor, was scheduled to give a keynote address today after Morningstar's luncheon. Apparently he actually gave two addresses: the one that Morningstar's folks attended and the one I attended.
Morningstar heard a cogent, rational argument for why a real interest rate of 0-1% is "the new neutral." At 2% real, the economy might collapse. In that fragile environment, PIMCO models bond returns in the 3-4% range and stocks in the 4-5% range. In an act of singular generosity, he also explained the three strategies that allows PIMCO Total Return to beat everyone else and grow to $280 billion. Oops, $230 billion now as ingrates and doubters fled the fund and weren't around to reap this year's fine returns: 3.07% YTD. He characterized that as something like "fine" or "top tier" returns, though the fund is actually modest trailing both its benchmark and peer group YTD.
I missed out on that presentation and instead sat in on an incoherent, self-indulgent monologue that was so inappropriate to the occasion that it made me seriously wonder if Gross was off his meds. He walked on stage wearing sunglasses and spent some time looking at himself on camera; he explained that he always wanted to see himself in shades on the big screen. "I'm 70 years old and looking good!" he concluded. He tossed the shades aside and launched into a 20 minute reflection on the film
The Manchurian Candidate, a Cold War classic about brainwashing and betrayal. I have no idea of why. He seemed to suggest that we'd been brainwashed or that he wasn't able to brainwash us but wished he could or he needed to brainwash himself into not hating the media. 20 minutes. He then declared PIMCO to be "the happiest workplace in the world," allowing that if there was any place happier, it was 15 miles up the road at Disneyland. That's an apparent, if inept, response to the media reports of the last month that painted Gross as arrogant, ill-tempered, autocratic and nigh unto psychotic in the deference he demanded from employees. He then did an ad for the superiority of his investment process before attempting an explanation of "the new neutral" (taking pains to establish that the term was PIMCO's, not Bloomberg's). After 5-10 minutes of his beating around the bush, I couldn't take it any more and left.
Gross's apologists claimed that this was a rhetorical masterpiece whose real audience was finance ministers who might otherwise screw up monetary policy. A far larger number of folks - managers, marketers, advisors - came away horrified. "I've heard Gross six times in 20 years and he's always given to obscure analogies but this was different. This was the least coherent I've ever heard him," said one. "That was absolutely embarrassing," opined someone with 40 years in the field. "An utter train wreck," was a third's. I've had friends dependent on psychoactive medications; this presentation sounded a lot like what happens when one of them failed to take his meds, a brilliant guy stumbling about with no sense of appropriateness.
Bottom line: Gross allowed that "I could disappear today and it wouldn't have a material effect on PIMCO for 3-5 years." It might be time to consider it.
For what it's worth,
David
Comments
Perhaps it is time for him to enjoy life while he can.
Once again I am reminded of...
http://dealbreaker.com/2014/06/here-are-some-things-that-exited-bill-grosss-mouth-this-afternoon/
http://www.valuewalk.com/2014/06/bill-gross-morningstar/
"Proclaiming he’s 70 years old “and moving on as they say,” Gross repeatedly compared himself to a “70 year old version of Justin Bieber,” while others may compare him to a Kim Kardishian impersonator “if you want to hear about my feminine side,” he said."
WTF?
Many of us have access to a variety of bond funds, with many funds having very acceptable performance; relative to Pimco's Total Return fund.
One Pimco fund we hold ( PIMIX ), is one that I hope we are able to keep; at least until we might choose to sell for our own reasons, and not reasons that may result from performance problems internally modified at Pimco from a poor morale culture.
I note the morale issue; as I have been involved in this circumstance within a large national/international company. Twenty years of fine performance with a tight team of 15 people, being disrupted by a manager who no longer "had a grasp" of events. The team lost members and was never again of established quality. The "morale factor" played a large role in destroying the team and, of course; the performance suffered.
Regards,
Catch
With apologies to its author Elbert Hubbard, thank you for your Message to MFOers ( originally to Garcia). Your messages, in almost real time, of what’s what at the annual Morningstar Conference should permit us to take the investment initiative. So far that hasn’t happened. That’s not your fault. It’s like we are seated in the conference rooms with you.
It’s really not surprising that a fair review of the proceedings is almost always a mixed bag. Are the insights gleaned from the presentations worth the time and effort? Typically, these conferences generate a jumble of rubbish and a few gems. The wheat must be separated from the chaff.
For years (like 15), both my wife and I have been attending and even occasionally participating in the annual Las Vegas MoneyShow. Each year we question if the learning is worth the price. Yet each year we return with an optimistic mind-frame. Hope springs eternal. Fortunately we usually return home with a few nuggets of wisdom. So I suppose my answer is “yes”. Although the promises and expectations far exceed what is ultimately delivered, it is still a worthwhile time investment.
The Morningstar agenda at this conference is clearly directed at financial professionals. That suggests that the presentation bar should be set a bit higher given the likely sophistication of the audience.
Based on your summary reporting, the bar standard is unacceptably too low, or perhaps, the presentations are so generic or fuzzy, that the bar height can not even be accurately defined. That too is bad, but it is not a shock either. If the presenter actually had a special forecasting insight or investment preference, he/she is not likely to freely reveal it to a non-subscribing audience. If I were the presenter, I would reserve this gem for my paying clients.
I find it somewhat puzzling why a few MFO members are so short-tempered and even hostile towards Morningstar’s limitations, errors, and costs. Research and data collecting costs money. Folks are imperfect and blunders are made despite the best organizational, structural, and double-checking safeguards. Accepting that reality, I adopt a more forgiving posture. Even my Toyota was delivered with several minor flaws which the manufacturer quickly corrected.
I’m not advocating the elimination of skepticism. A skeptical attitude is needed when making all investment decisions. However, it has a limit to its usefulness. It has the usual diminishing returns characteristic. At some point, it detracts from permitting a timely decision from being made.
Morningstar is one of the preeminent mutual fund data sources available to us individual investors. Overall, it has served us well. How do I know this?
It has a growing legion of loyal customers who trust its services. It attracted a huge number of professionals at this session who were willing to invest time and to pony-up 795 dollars to attend these sessions. Its sponsor and exhibitor lists are impressive. It has a history that dates back to when Peter Lynch managed the Magellan fund. Morningstar must be doing something of service to the investing public.
Since it is a successful enterprise, it must be a win/win scenario for both the buyer and the seller. Otherwise money would not change hands. Morningstar is prosperous and expanding; it continuously tries to improve its products. Certainly not all of these experiments are successful or equally useful for its disparate customer base.
Early in its history, Morningstar was very weak on analytical talent. Originally they hired professionally trained writers while passing on market analytical/investment types. Eventually, Morningstar recognized that shortcoming and integrated Ibbotson into their team. As an elite provider of investment data and analyses, Morningstar is committed to keeping its edge. Sometimes their efforts work; sometimes these efforts fail. It is up to their users to assess the merits of these exploratory projects for their special circumstances.
It is far too easy to be a constant critic. The bad is overemphasized while the good is swept away without acknowledgment. If the Morningstar presentations are too dull or too inept, the answer is simple enough: abandon the ship.
As usual, Warren Buffett had a succinct and wise way of putting it: “ Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
Regardless of its shortcomings, I plan to continue using Morningstar as a primary mutual fund data resource. In the end, it is my responsibility to critically examine that data to judge its reliability prior to making a decision.
Your description of Bill Gross’s weird behavior is reminiscent of a like event at the recent Las Vegas MoneyShow. At that event, Ken Fisher made a presentation that seems to be a mirror image of Gross’s misstep. It was totally not decipherable and made no sense whatsoever. To be generous, everybody has a bad day. Perhaps it was caused by the Chicago air compared to the Newport Beach air? Nope, these guys are just being human.
We are often Fooled by a Random Success. I capitalized the phrase because I coupled a Nassim Taleb saying with a contribution from an old friend. Even tossing 10 consecutive heads doesn’t mean we’re in control. Luck is always an investment component. For what it’s worth, we each have a 1 in 1024 probability of tossing 10 straight heads. Not likely, but doable.
Professor, please keep the report flow coming. I wish I were there with you.
Best Regards.
Wish you folks were here too. It turns out that MFO is modestly more well-known than you might suspect, and so I've been drawn into more impromptu conversations with fund folks than I'd budgeted time for. In the long run, that will help us - the more they recognize and respect our work, the easier it is for us to get access to the information and perspectives that might be useful to folks. In the short run, it's badly derailing my carefully planned rotation of panel attendance.
In general, these panels are all a mix to marketing and useful insights; this year, several of the panels have been badly tilted to the marketing and away from the insights. Personally, I think "brilliant insights" are better marketing than "preening review of our process and performance," but that seems not to be widely shared.
From the advisors' perspective, I suspect 80% of the value of the conference is a combination of networking opportunities (lots of fund managers are meeting with prospective clients with practices in the $100 million and up range, the $10 million folks are "little practices") and continuing ed credit. To the extent that this allows managers to better know their investors and for investors to better understand what they're getting their clients into, I celebrate the networking. It's a major long-term gain. The food's okay, the tchotskes are getting a bit odd (uhh ... foam rubber rockets on a rubber band and water pistols complement the usual pens 'n' such), and the panels are mixed, but the face-to-face should pay off for lots.
For what it's worth,
David
I do think that people (not saying towards anyone here) are giving a little too much slack towards companies whose products decrease in quality and/or quality. I think - in some ways - people are a little too forgiving. I think people also are moving away from quality if it means convenience in some things (photography, music, etc) but that's another story.
When the product deals with people's money - such as investment research - people are going to be harsh critics. It shouldn't be surprising when there's money at stake.
"It is far too easy to be a constant critic. The bad is overemphasized while the good is swept away without acknowledgment. If the Morningstar presentations are too dull or too inept, the answer is simple enough: abandon the ship."
It's also far too easy to be a pollyanna and then have the convenient "whocouldaknown?" excuse when things go wrong. There is a happy medium, although finding that medium may take a great deal of trial and error.
"I’m not advocating the elimination of skepticism. At some point, it detracts from permitting a timely decision from being made."
Sometimes skepticism does save people from making rash decisions that they regret later. After the financial crisis, I think people aren't skeptical enough - everyone just wanted things to be rebooted back to a few years prior without the unpleasantness of actually trying to make it so something similar wouldn't happen again. History is bound to repeat itself because having to learn from mistakes is no fun.
If Madoff was out of prison tomorrow and started a fund again, I bet he'd have willing investors. It's the second "Wall Street" movie. The Gekkos of the world go in front of an audience of those just willing to believe and they listen and clap and don't ask questions. 2008 happens and a few years later, they're sitting, clapping and hanging on every word yet again.
Is there a problem with being too cynical, skeptical? Sure. I also remain that a far more widespread problem is people who are firmly at the other end of the spectrum.
"At that event, Ken Fisher made a presentation that seems to be a mirror image of Gross’s misstep"
I don't know how people can listen to Fisher, who is so aggressively promotional, with those smarmy ads. Odd that I never see Fisher on financial media, it's always as banner ads on financial websites and the like.
As for Gross, I think the issue with Pimco is that you had two people who were the "face" of Pimco and El-Erian was always the far better public speaker. Yet, Gross was always interesting with his knowledge and experience. Now Gross is starting to seem to falter and there's no one that has been kind of groomed to be the next public face of Pimco (although I have said I thought Tony Crescenzi should be the next CNBC face of Pimco.)
I've stopped selling what I have left in Pimco funds, but would like to see a little clarity about the company getting its house in order before adding anything to Pimco offerings. Bill Gross comparing himself to Justin Bieber and Kim Kardashian is not exactly a confidence builder.
I've never cared much for Gross; the sunglasses thing was just the icing on the cake. When is enough ever enough for this guy? His shareholder communications were often written largely for his own benefit, not mine. Given the slew of mishaps and missteps at PIMCO recently, I wish he'd just shut up and manage the portfolio.