Its an old saw in asset management: Stock pickers are
optimists. Their picks, after all, have unlimited potential to
rise on a good story and thus enthusiasm and optimism
are the default mien. Bond managers, on the other hand, are
always looking at things to go belly-up, cultivating an
emotional (and financial) protection against the downside.
Bonds, of course, earn a certain interest rate annually
but unlike stocks, their upside is capped, while still
keeping open the possibility of losing everything if the
issuing company, or government, goes south.
Perhaps bond managers have developed a sense of humor to
deal with it all.
Take Bill Gross. Gross, now at Janus Capital, pioneered
active management over a 40-year career at Pacific Investment
Management Co. His monthly outlook letters are highly
anticipated for their market insights, but Gross also has a way
of mixing funny personal anecdotes with real economic
In August of last year, Gross somehow deftly got from the
theoretical importance of dealing candidly with kids
questions about sex, test-tube babies, and Victorias
Secret catalogs to honestly addressing investors
questions about the economy and financial markets. In response
to his sons question about the lingerie mailer, only Bill
Gross would ask himself this: Well now . . . does he mean
what is Victorias Secret or what is
Victorias Secret? (emphasis is
Its not helpful, he went on, to tell kids that kittens
come from the pet store (his own mothers answer to the
age-old question on the provenance of babies). Its also
not honest to tell investors that policies like quantitative
easing will end well, Gross wrote. Okay, not laugh-out-loud
funny but better than your standard market outlook.
Then theres Daniel Fuss, coportfolio manager of
the flagship Loomis Sayles Bond Fund. Fuss is legendary when it
comes to managing bonds. He is equally as famed for his
storytelling, as well as his promises to everyone at Loomis,
Sayles that hell work as the firms office greeter
if he ever loses his sharpness.
If you give the 83-year-old Milwaukee native enough time,
hell detail the lessons about risk that he learned in the
Navy and now applies to bond investing. The former signal
officer explained to Institutional Investor in 2012
about diversification and aircraft carriers: Aboard the
carriers were plenty of different types of aircraft, but
I always kept in mind that you had to make sure the carrier
didnt sink, in which case diversification would
clearly be useless. After laughing, he instructed the waiter to
add extra bacon to his salad, while assuring the author that he
would tell his wife, Rosemary, he had eaten only grilled
asparagus for lunch. Fuss is funny in a Prairie Home
Companion kind of way.
Maybe bond managers just work harder to be clever and funny.
Theyre heavy on degrees in math and engineering, tasked
with divining the will of the Federal Reserve, the inflation
rate, and other financial minutiae. Sanity demands adding a
little cheer to the mix otherwise market outlooks on,
for example, rising yields would be just as likely to put
readers to sleep as to inform them.
One manager holding no risk of boredom is Jeffrey Gundlach,
co-founder of DoubleLine Capital. Last year the controversial
investor shared the stage with James Grant of Grants
Interest Rate Observer to talk about Donald Trump, monetary
policy, and debt. Speaking to a room packed with advisers and
investors, Gundlach likened peoples impatience with
investments (his advice: choose wisely, and put them in a
closet for a few years) to people desperately watering dying
post-Christmas poinsettias (do nothing, cut the plants back to
within an inch of their lives, and put them in a closet for a
Sometimes, of course, bond managers are not funny. Its
the fixed-income markets that clue investors that there may be
cracks in an otherwise sunny future predicted by stocks. In
early 2008 the bond markets warned of danger even as stocks
partied on until September. Last month Treasury markets were
sending signals that the Trump equities rally may be
Its hard not to be a crank when your role is to be
Cassandra. Our highly levered financial system is like a
truckload of nitroglycerin on a bumpy road, cautioned
Gross in his most recent outlook. One mistake can set off
a credit implosion where holders of stocks, high yield bonds,
and yes, subprime mortgages all rush to the bank to claim its
one and only dollar in the vault.
And cranks arent always funny.