Bill Gross INVESTMENT OUTLOOK
There’s 50 ways to leave your lover and maybe more than that to lose your money or “break the buck,” as some label it in the money markets. You can buy the Brooklyn Bridge, bet on the Cubs to win the World Series or have owned 30 year Treasury bonds in 2013, to name just a few. But bridges and baseball aside, what you’re probably interested in hearing from me is how to avoid breaking your investment buck in 2014.
Yet having experienced those formative years – with 2013 now being one of them in total return space – it’s helpful to remember some of the client and indeed personal frustrations that accompanied them. When your annual return shows a minus sign, clients wonder why they should pay you a fee to lose money. They have a point, although it may be somewhat shortsighted. A few also struggle to understand that bond prices go down when interest rates go up, and that with interest rates so low, the odds of up as opposed to down are slightly tilted. This principle I call the teeter totter or “seesaw.” I used to explain bonds to my mom every Thanksgiving or so, on a journey up to San Francisco. She wondered then why she was always 10 or 11% richer on her statement at year-end, remarking that these “yields” were pretty high. I reminded her that the 11% or so was a total return not a yield and that when interest rates went down, prices went up just like a “teeter totter.” That seemed to help her understand the “bond market” much like it would help some “mom and pop” investors understand it today, although bonds switched seats so to speak on the seesaw in 2013.