All legendary investors have a big-time call. George Soros went for the jugular in 1992 when he shorted the British pound and made a cool billion. Then there was John Paulson, who made $5 billion when he shorted subprime mortgages in 2008. Or look at David Tepper — in 2009, he snagged $7 billion when he purchased distressed financial stocks like Bank of America (NYSE:BAC).
Yet these investors tend to keep their trades secret. Why give away a good idea? Besides, if the trade fails, it’s probably not a good idea to give it much exposure.
In the case of the co-chief investment officer of Pacific Investment Management, Bill Gross, however, there has been a different approach. For the past few months, he has been vocal about his belief that there will be a drop in U.S. Treasuries. Gross has been a frequent guest on CNBC, has written several articles on his investment thesis, and has even Tweeted his thoughts.
On its face, Gross’s contention is reasonable. He considers that the Federal Reserve’s $600 billion bond-purchase program – known as QE2 – has been an artificial boost. So with its expiration by the end of June, there should be a drop in prices, right? After all, where will the buying come from?
Interestingly enough, it looks like there are many buyers for Treasuries. Investors across the world are getting jittery and want a safe haven due to the disaster in Japan, the continued debt crisis in Europe and sluggish growth in the U.S.
Gross may still be right. But the problem is that he set June as a deadline. Aren’t great investment calls about getting the timing right?
Of course.
Unfortunately, Gross’s flagship PIMCO Total Return Fund (PTTAX), was a laggard in May. It was in the last 10% quartile of its peers, with a return of 0.2%.
So should investors bail on him? Definitely not. Gross has an enviable track record (for example, he was able to perform quite well during the financial crisis of 2008). Over the past 15 years, the fund’s average annual return was 7.3%. In other words, he tends to be right when it comes to making key investment moves.
But going forward, Gross should probably stick to his analysis and portfolio management – and not become a shill for his investment ideas. It would be better to let the results speak for themselves.
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
