Consider This from NPR - The Rise And Fall Of A Notorious Financial Investor

Episode Date: March 23, 2023

PIMCO founder and legendary investor Bill Gross was known as the "Bond King." People all over the finance world listened to his market calls. He helped change a sleepy bond market into the highly competitive and profitable world we know today. His story is also the story of how American financial markets work, how people game them, and what happens when they implode. NPR's Mary Childs wrote about Gross in her book, The Bond King: How One Man Made A Market, Built An Empire And Lost It All. She reported an episode about Gross for NPR's Planet Money.In participating regions, you'll also hear a local news segment to help you make sense of what's going on in your community.Email us at [e-mail] more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This message comes from Indiana University. Indiana University performs breakthrough research every year, making discoveries that improve human health, combat climate change, and move society forward. More at iu.edu forward. Early in the morning on September 26, 2014, a giant announcement shocked the financial world. Big Friday story, shocking story, really. Bill Gross, who founded PIMCO more than 40 years ago, has left. He's gone to Janus Capital. Bill Gross.

Bill Gross! This legendary investor. This matters because PIMCO is so big, $2 trillion in assets under management. He was leaving PIMCO, one of the most influential money management companies on the planet. Normally I wouldn't give a hoot or a fig about some bond manager leaving a firm, but Bill is PIMCO, or was PIMCO. Gross co-founded the company in the 1970s, and while there had been talk of infighting at the company, no one expected Bill Gross to leave. His departure caps the year of turmoil at the company, in which it was riven by destructive tensions at the top. Bill Gross was known as the bond king. That's because before him, bonds were a steady financial

tool, the backbone for many Americans' retirement savings. Bill Gross helped to revolutionize that, inventing the modern bond market, making it exciting and cutthroat with enormous consequences. Not to mention, PIMCO oversaw trillions of dollars of client money, and Bill Gross personally controlled hundreds of billions of that. That's why his departure from the company was such a big deal. And regulators started to worry that this was going to be a systemic event, something that would knock the economy off course from the still shaky post-crisis recovery. That didn't actually end up happening, but that's how big of a deal this was.

NPR's Mary Childs wrote the book on Bill Gross. His story is also the story of how financial markets work, how people game them, and what happens when they implode. It's Consider This from NPR. I'm Ari Shapiro. This message comes from WISE, the app for doing things in other currencies. Send, spend, or receive money internationally, and always get the real-time mid-market exchange rate with no hidden fees. Download the WISE app today or visit WISE.com. T's and C's apply. It's Consider This from NPR. So why did Bill Gross leave PIMCO? In short, it ended up as a kind of you-can't-fire-me-I-quit situation. After clashes with other top executives who'd been working to

broaden what PIMCO did beyond Gross' area of expertise, they started laying plans to fire him. Gross felt it coming and left on his own. Bill Gross' story began decades before all that, when he learned he had a knack for numbers and that he could find ways to beat a system. It happened while he was recovering from a car crash as a young man. He read a book on how to win at blackjack by counting cards.

And when he recovered, he went to Vegas to put his newfound skills to use in the casinos. Card counting builds intuition. Gross was learning to feel risk. When to lean in harder and bet more when the odds were in his favor. And when to lie low and wait for the deck to heat up.

Bet small, hold off, hold off. Bet big, double down. It was like driving stick shift. Or dancing. That's Mary Childs, one of the hosts of NPR's Planet Money podcast, reading from her book, The Bond King. How one man made a market, built an empire, and lost it all. That book tells the story of Bill Gross's rise and fall and how he almost

single-handedly changed a financial system that affects your wallet and mine. But I want to start with the man himself. You offer an anecdote that's stuck in my head about a question Bill Gross would ask every job applicant. What was the question? It was, do you prefer money, fame, or power? You got to choose one. You got to pick one. Which do you want? How did he answer the question?

His answer from the get-go was he wanted fame. He just wanted to be famous. That is not what I would have expected. What does that say about this guy? I think he knew that he had this kind of yearning for acceptance and for love. He says that he always was searching for this kind of way to pour public attention into his heart and somehow fill it, right? And you see this kind of as a common thing among celebrities, I feel like. But it's interesting in the context of bond management, which is not a super sexy industry. And yet he does become famous and rich.

Exactly. And powerful. How did he do it? He ended up being extremely good at trading bonds. And this was when he started out, this was not really a thing. Bonds were just pieces of paper that were kept in vaults and you kind of clipped a coupon and got your interest payment. But Bill Gross helped to kind of bring about out, this was not really a thing. Bonds were just pieces of paper that were kept in vaults,

and you kind of clipped a coupon and got your interest payment. But Bill Gross helped to kind of bring about this revolution where you would buy and sell those bonds and say, you know what, this is not as good of a bond anymore. I don't want this. I want that one. And you're in search of capital appreciation. Before I read this book, I didn't fully understand the difference between stocks and bonds. Give us the CliffsNotes version for people who are not financially literate on that level. So when you buy a stock, you're buying a little slice of ownership in the company. The stock price will swing up or down based on how well the company is doing and how well it's expected to do in the future. When you buy a company's bond, you're getting a promise of your money back after a fixed period of time with little interest payments along the way. It's basically just a loan to the company.

And if the company isn't able to come up with the money, basically, depending on the terms of your agreement, you might get to take the company's assets like its trademarks or its plants and equipment. There's another way to think about this, though, kind of the demographic difference between these two asset classes. It's a kind of hyper simplified way to think about it. But, you know, you and I can play in the stock market. We can go buy a little piece of GameStop and ride it to the moon. We can have fun. But there are enormous institutional investors that invest money on behalf of, you know, pensions, endowments, all that kind of stuff. And they just have so much money to invest. And the bond market is an even bigger and more influential, I would argue, playing field. They get to invest, you know, five, 10, 50 million dollars at a time. Whereas, you know, you and I, I'm assuming, are not going to be able to do that.

You assume correctly. Today. Today. Don't short us. Do you think that the American financial system has become more like a Vegas gambling table during the decades that Bill Gross was helping to shape it? And is that a result of his approach to investing? I mean, how much credit responsibility or blame does he get for this? I think he more than anyone called it that. It's actually kind of unusual, I think, for investment managers to be like, I am gambling. You know, they generally

try to say, I'm doing fundamental analysis, I'm doing this, I'm doing that, and make it very serious sounding and very professional. And of course it is. But there is this very big element of you are making bets, you're betting. And I do think that Bill's attitude and kind of his success in it did kind of create a model that other people found really admirable. And I do think that that was super influential in helping to grow a lot of these markets. I often hear conversations about what sets apart the world's greatest athletes or actors, but I haven't often heard conversations about what sets apart that same kind of top sliver of financial investors. How are people like Bill Gross different from all the other humans of the world? I think one of the ways

that they characterize themselves in particular is that they're emotionless, is that they can remove themselves from the kind of roller coaster of emotion that you and I might be on, you know, and that's... Right, like millions of dollars are on the line here. Like I would be sweating, right? And they just don't. They just don't, to whatever extent possible, they manage to contain those emotions. And, you know, they will tell you all day long that, oh, I'm very, you know, stoic. I'm very good at managing my emotions. Now, of course, there are very acute moments in the book where that clearly breaks down,

but that's a big part of the brand. Right. Now, the title of your book reveals that he did not remain on top of the world. Bit of a spoiler, I guess. Right. Right. It's there on the cover. And you lay out the specific reasons for that. But more broadly, do you see this as like a story of hubris? Is it the classic Greek myth of Icarus who flew too close to the sun? Or, they were buying stuff that he was like, what even is that? And how do you value it? Like, are we investing in real estate and just like whole buildings now? And yes, they were. So I think it's like, success is itself, you know, kind of a curse. There's a point at which it becomes almost untenable and impossible to manage. Do you mean that this downfall was almost inevitable? I think there's a way to manage through it or to delegate.

But a lot of the people that reach these heights reach them because they're control freaks, right? They are very micromanaging. They want to keep an eye on everything. And that can be an ingredient for success. And the flip side of that is you have to be able to let go. A lot of this book is about, you know, it was time for Bill Gross to figure out how to step back and he could not. So that inability, more than anything else, I think probably was the kind of seed of the downfall. I also want to ask about your personal experience of working on this book, because it describes a culture of so much entitlement, arrogance, bossiness, toxic masculinity,

like choose your word. There are not a lot of characters who come across as especially likable and these are people you devoted years of your life to understanding and writing about yeah so what was that like um it was kind of painful like at times you know you would have the women's march on happening in the big world and i would be over here on a golf course being introduced to a source's friends as his girlfriend. It was not ideal at times. And part of the job here is relating to all of the people in your book, in the world that you're trying to write about, and meeting them where they are. And at a certain point, that becomes super unhealthy. It was pretty gnarly. I'm glad that the project has ended.

So why did you keep at it for seven years? Why did you find it an important enough story to tell that it was worth enduring all of that grossness? So to speak. Yeah. I think part of it was that, you know, I'd come too far and I don't understand the basics of sunk cost. I just couldn't walk away. I'd already done so much. But on the flip side, I do think that PIMCO occupies such a central part in our economy, you know, and it shocked me when I started covering this company in 2014 that there wasn't already a book about PIMCO and Bill Gross. There's often this kind of canyon between what we in the financial press know and what the mainstream audiences are even aware of. And trying to bring things from our little island

of finance into the big world, you know, that's what I do at Planet Money. That's what I wanted to do with this book. It's, I think, critically important for us to understand what's going on on that island. Mary Childs is one of the hosts of NPR's Planet Money. We've got a link to an episode of that show in our episode notes, with more from Mary on Bill Gross. It's Consider This from NPR. I'm Ari Shapiro.