Daily Ticker

Bill Gross Learns a Hard Lesson: Even the ‘Bond King’ Makes Mistakes

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Nobody's perfect. Not even the "bond king" Bill Gross. The Pimco co-founder and manager of the $244 billion Total Return Fund tells the Financial Times betting against U.S. Treasuries was a mistake.

The Total Return Fund sold all its U.S. Treasury holdings this winter thinking Treasuries were the "most overvalued" fixed income asset (as he told The Daily Ticker in March) and an improving economy would create inflation, thereby making the low-yielding debt less attractive. Gross tells the FT he erred by being too optimistic on the U.S. economy. "I get that it was my/our mistake in thinking that the US economy can chug along at 2 per cent real growth rates. It doesn't look like it can." Gross has been proven wrong and his fund has suffered. As of Monday, Pimco's flagship fund ranked 501th out of 589 bond funds in its category, says the FT.

Gross was also burnt by the European sovereign debt crisis and a stock market sell off that drove investors into the safety of Treasuries; 10-year Treasury yields fell below 2% to record lows earlier this month.

Gross still thinks his thesis holds true in the long-term. "Ten-year Treasuries at 2.25% are discounting a heap of trouble (none of it strangely enough due to its own credit standing), and neither investor nor borrower may emerge from this brouhaha unscathed," he writes in his latest missive on Pimco's Web site.

But timing is everything when it comes to investing, as the Daily Ticker's Aaron Task and Henry Blodget discuss in the accompanying clip. You can be right about the premise and wrong about the investment at the same time. It also show just how hard investing can be; even the greatest investors get it wrong sometimes.

Hedge fund billionaire John Paulson is also learning that lesson this year. Famous for shorting the housing market in 2008, a bet that netted him billions, Paulson then went long financials near the lows in 2009 and made more billions as stocks rocketed off the bottom. This year, however, Paulson has been hammered because he held onto those bank stocks too long and made other poor investments including Chinese timber company Sino-Forest, which has been rocked by an accounting scandal.

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