Motley Fool Hidden Gems Investing - Investing Lessons from The Bond King

Episode Date: April 10, 2022

Beating a market for decades isn’t easy. Mary Childs, author of “The Bond King: How One Man Made a Market, Built an Empire, and Lost It All” joins Ricky Mulvey to talk about PIMCO founder Bill Gross and what retail investors can learn from his story. Childs discusses: - How Gross traded bonds to beat the market for decades - Why PIMCO may have “started the party” that led to the Great Recession - Why Bill Gross was blasting 50 Cent’s music at his neighbor’s house Bonus resource! How to Invest in Bonds - https://www.fool.com/investing/how-to-invest/bonds/ Host: Ricky Mulvey Guest: Mary Childs Engineer: Steve Broido, Tim Sparks Learn more about your ad choices. Visit megaphone.fm/adchoices

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Because we have your number. being the bond king was really a bid for fame and was a vehicle for for what he really wanted which was fame which was sort of to to feel loved you know that was also a vehicle to fill this kind of hole in his heart in a way and i think we all have that hole in our heart right like everyone loves to check their notifications or whatever fine but it is like you know you're never going to be happy you're never going to reach like you may think that there's some threshold level where you're going to be like oh good i've made it and i feel better now about my life and my finances and my self-esteem and all of these things. But there's, you know, everyone that I've talked

to basically that has reached that level. You have to have some kind of external validation or some kind of ability or sorry, internal validation. Like you can't use that as a measuring stick. There's no dollar amount that's going to help you. I'm Chris Hill, and that was Mary Childs, financial journalist, co-host of Planet Money, and author of the new book, The Bond King, How One Man Made a Market, Built an Empire, and lost it all. The Bond King is the nickname given to fund manager Bill Gross, who started PIMCO and managed the largest bond fund in the world. Mary Childs has spent years covering him, and producer Ricky Mulvey caught up with her to talk about how the Bond King managed

to beat the market for decades, how PIMCO's actions may have contributed to the Great Recession, and why Gross one time blasted rap music at a neighbor's house in what appears to have been an act of vengeance. You start the book with something that might be a little controversial for the fools listening now, because Motley Fool folks, they really like stocks. We like stocks a lot. So this is kind of like being a fan from Michigan coming into Ohio stadium, but you start the book saying, quote, we like to talk about stocks, which are also claims on a company, but are riskier, more whimsical. People think stocks are more fun, but in my opinion, they are wrong stocks are dumb yeah what is the case for that other than shareholder equity being lower on

a um essentially an income statement than um company debt repayments so yeah that's a big part of it um we're just bonds are we oh my god i'm literally on a team um whoops no bonds are just yeah bonds are higher in the capital structure and therefore earlier claims but also you know i feel like the world of and stocks have this to have that complexity but maybe it's more of a kind of demographic of my sources question where, you know, the people that I was talking to in the bond world, I started out covering credit default swaps, right? And they were, you know, post-crisis, they had been blamed for the crisis and the people who traded them that were left, you know, certainly there had been already a washout by that point. They were really

like Excel spreadsheet heavy people and just excited to tell you about their market and very like model oriented. And that's not to say that stocks people aren't, but there's an optimism in stocks that i don't understand and an optimism in stock managers that i don't like it's frustrating as a reporter sometimes if like a hedge fund manager has a trade that they want you to write about some of them have a tendency to just kind of shake you until you understand it you know they just want you to know what they're trying to they want you to write the story and you're like i'm just you just want to use me as a tool for your trade like i what my only use then is a con is as a conduit and that's my least kind of favorite kind of reporting because you i mean i don't like

being used as a tool and the ability to bring my curiosities to that it just it's just frustrating and i don't really i didn't enjoy that side of it so i think a part of it might be just like from a journalistic perspective but also the complexity i think um i think stock people would argue with me about this but there's more to do in my opinion in bonds and there's more you know you can breach covenants you can engineer more i just feel like there's more ability to kind of get into the nuts and bolts in a company's financials like that. That's from the institutional side, but maybe not so much for like a retail investor. I don't think you get to do that with bond investing. Kind of your best hope is to buy these ETFs, bond ETFs really, because it's intensely difficult to buy

single company debt. I think bonds are interesting to give some credit to bonds is they act as almost this like dark, like they act as this like dark matter in the financial world. What's that? i like that we're opposed we're like really on on um different teams and that's okay that's that's good it's like crossfire yeah exactly oh my god throwback no it it kind of strikes me as this like dark matter where um the stock price stocks are so much more visible but there is so much more like bond money out there but it's because it's on an institutional side you don't hear about it as much and also i mean i mean to your earlier point i think the incentives are a lot different whereas if you have a hedge fund manager calling you they want exponential growth on that stock

return whereas a bond manager is a going to be more pessimistic but their um expectations for what they're going to get out of a bond are probably significantly lower than let's say a share of amazon there's something yeah there's something tangible to bond investing that i love where you can just really wrap your whole mind around it like you're not trying to go for infinite growth you're just trying like yeah maybe that's like a failing of my imagination where i'm not on board for the like eternal infinite story i want to understand like this is how much it's going to go up here's the literal claim on assets if we liquidate this is what we would get sense on the dollar that makes perfect sense to me i can get my head around it but yeah the the kind of like

to the moon stuff i'm like and and then what and then compound interest is cool and then like what you have stocks that you're able to like i don't know i think stocks for me are cool because it's it's it's like a value of my time that i can put into a company that represents ownership um speaking of the bond market though um it started i think the thing that's that's that's so wild to me is you talk about how it's this very, like, it was this sleepy cottage industry with two people who really started it. That was Howard Rakoff and Bill Gross. First, what did Howard Rakoff figure out? And then what did Bill Gross do that others did not figure out in the early days? So, it's kind of radical to think about. It's a little, like, difficult to comprehend

in our, you know, era. But back then, bonds just weren't traded. They lived in a vault. You clipped your coupon you know got you got your interest payment periodically and that was kind of all you did you got your money back at the end and you were pleased with that but it was a time of high inflation and you know as a result the value of these bonds sitting in the vaults obviously they were just getting eroded and howard rakoff had had kind of an interesting um he he got his masters and he learned in that that there was like more to do basically and it got really stuck in his head that there was this idea that maybe you could trade these things that there's no real reason why you held it forever like if it's just sitting in the vault and losing its value day by

day because of inflation why not try to sell it to somebody else maybe at a little discount and go buy a new bond that's going to be better for you and it really got kind of stuck in his head right this became he started to see it everywhere and he started kind of evangelizing about it as well he went around the country talking to different people at banks and other institutions trying to get them to trade bonds with him because you know he might have this idea but you can't trade by yourself. So he eventually found Bill Gross's boss, Ben Ellert, and was like, hey, I have this pitch. I got this idea. And Ben Ellert was like, I mean, okay, man, but I'm not super interested, but maybe you want to talk to the young guns at my office, these two guys who

work for me. And Bill was one of them. And obviously that ended up being a very consequential meeting for all of us because they more or less, you know, with the other people that Howard and others recruited. Um, that's the kind of patient zero, you know, that's the foundational moment for the bond market, for the active bond market as we know it today. So Bill loved it. You know, he ran with it. What's the call? What like, are you asked is, is, is Rakoff asking these investment firms to create entirely new departments? Is he asking for people who are already like taking care of the bonds, add on added responsibilities? Like I, I still don't understand what, what the pitch was. Yeah. So like, okay. In Bill's case, he worked at an

insurance company, right? And the thing that insurance companies were doing with bonds, which makes a ton of sense is if you're an insurance company, you know that you have liabilities that will come, right? You know that you're going to have to make payouts on the claims that you sold. And so all these policyholders are giving you their money and they're going to need money at a certain time. And you can, as an insurance company, part of your job is to know when those payments are going to be demanded, right? So you have actuary tables predicting when everybody's going to die. And functionally, you can line those tables up and other insured things. You can line those tables up with a schedule of bonds, right? So you'll know when

those interest payments are coming in and when your capital is being returned. And it's super reliable. You know, the point was just to kind of check that off and just match things really nicely, like a game of Candy Crush, right? Where everything would kind of evaporate itself and you would offset all of that risk and know when your money's coming in and when your money's going out. And that's, you know, that was the function that Bill Gross was serving. He was helping to analyze credits as they came in and he was clipping those coupons off the bonds you know asking for the interest payments as they were due so that that like from the beginning he really enjoyed sort of having that like let's say one percent edge squeezing pennies out of the dollar

did that come from his card counting days i think so i mean he's a he's naturally pretty conservative in terms of risk taking sometimes um but like i think yes he learned in vegas that that taking risk, you don't want to let yourself get overtaken by emotion. You don't want to let yourself lose sight of the odds that you're dealing with. He learned from this book called Beat the Dealer by Ed Thorpe, that there was a system to counting cards and that that will enable him to have an edge over the dealer. The house always wins, but not if you're counting cards. So from that, I think he did learn that your statistical advantage is really never going to be better than 51%. And when you have 51%, you should go for it. But you also need to just keep your head

together, stay cool and come to the table fresh every day and avoid ruin. And over the long term, that's how you win. He doesn't really like gambling. He likes systems where he's, he has a 51% edge, which is very different from having a couple of drinks at a craps table on a Friday night. And that played into a lot of the total return fund and how he found what was called structure alpha. So what were some of the things that he was doing at the time that other bond managers weren't? Because a point you've brought up in the past is, you know, a little bit of it was luck but a lot of it was skill yeah i think absolutely so at one point he likened this to me to like the pie crust structural alpha is the pie crust and then the filling is like your day-to-day

calls and like buying good credits and you know the the kind of investing that you and i think about you know picking names over over other ones um but the crust is this kind of more durable reliable but very very um thin if you will not to lean too heavily into the crust metaphor that's fine let's stay in pie let's stay in i mean i love it personally um but basically structural alpha is like a couple tenants that he found were market inefficiencies that he could really lean into over time right and one of those was for example mortgages they were just better and more comfortable in mortgages than a lot of their peers and they were really early so just by virtue of leaning harder into mortgages and deciding that they were more comfortable there pimco was able

to outperform for a very long time and consistently another one is taking more credit risk you know people are more risk averse and are more, are kind of miscalculating what exactly they think is going to happen at what time in the future. And that ties into also the selling vol. He was very, very into selling vol. He was kind of always figuring that, you know, he was happy to write this insurance. If he, if other people wanted to sleep at night and pay him for the privilege, he's happy to take that premium. What is, what is selling vol? So he would typically write like a strangle or it's basically finding different ways to embed options into your investing, I don't know, thesis and portfolio. So one would be a strangle on the

S&P. There was this very big trade in the summer of 2014 where everyone was talking about it and calling him the strangler. And it was like all the banks were talking about with their clients in absolutely unrelated meetings where he sold calls and puts just strangling a range on that S&P and saying, by this date, I think the S&P is going to stay within this range. And if he's right he just gets to keep the premium and if he's wrong he has to pay something out he was also really good at pricing things some of that was essentially finding odd lots of let's say you can you can describe it better than me but it's finding a group of bonds that people don't normally want to buy in a group and then grouping them together and then pricing it higher because you have volume

right sort of so what what yeah this is a like a little um pricing fluke that they managed to exploit um and what happens is you know especially with mortgage-backed securities because people pay down their mortgages, you know, they move, they buy a new house and in doing so they pay off the old loan, the pool of mortgage backed securities, it'll end up getting kind of gnarly, right? Like it'll decay and kind of shrink down in a way. And that ends up making it smaller and smaller as more and more people pay off their mortgages or, you know, get new ones. And so in the end, you end up with these like kind of misshapen, odd, odd little things that float around that other people are like, this is not worth my time. Why would I investigate every single mortgage in this pool?

it's not big enough to deal with it's just like kind of floating around and annoying and unloved and pimko had the insight that they're these are just smaller versions of the larger thing that existed before and if you liked it before you probably still like it now and that it is worth the trouble you know one of the things that i find about pimko is that they do go to that extra mile like in this and in other cases it just seems like the other people are like eh it's not worth the marginal effort and pimko's like no no it is i'm gonna do it so this is one of those cases where they decided to do it. But the thing you're honing in on is this pricing differential, right? Where you might buy an odd lot at kind of a discount because they trade below where they

maybe should because people don't feel like dealing with them. But the pricing mechanisms, the systems that we use to value our portfolios don't account for that. So you would put it in the system and bloop, it gets kind of valued at the round lot price. So you get kind of an instant paper gain, which is great if you're trying to establish, say, an early track record in a new ETF, for example. Which is what he did with the total return ETF that we can get to. The other pricing thing he did, and we're talking about the technical side, was also just a lot of it was very personal. What was PIMCO's relationship with other bond trading firms and why was it so toxic for a PIMCO employee to leave all in the spirit of getting a better price on many of these bonds

being traded. Yeah. So PIMCO was always from the get-go much harder on Wall Street. A lot of Wall Street coverage, the relationship between the buy and sell side is pretty amicable in part because you might get a job on the other side at some point, but also because you think about it as a long-term relationship. I want to get the first look on a bucket of bonds that's coming out. I want to be the first port of call when this new issue that's going to pop in secondary, when they actually, I want them to call me first. So you keep up this good relationship. You go to golf outings, you go to fun dinners, whatever. And PIMCO just didn't really do that. That's not, you know, they did the dinners or whatever, but they were not friendly. And they did not have

this view of the relationship as part of the kind of business case and that they needed to maintain this relationship. They were like, you need to know what we're doing. We're PIMCO. You need us more than we need you. And the funny thing to me is that they believed this more or less before it was true. You know, they were a pretty small shop relative to the size of the bond market. They were still relatively large. But, you know, they were much smaller in like the 80s. And Bill Gross already had this view. And I remember one sales guy had lunch with Bill Gross and Bill told him that, you know, you're going to need my information flow. And I was like, sorry, who are you? Like, what? But of course, that ended up being completely the case. So, you know, they also are necessary in

those new issues where the street needs to, you know, the underwriters who are building new issues for, you know, to sell a new batch of bonds. They need someone like PIMCO or BlackRock to anchor that new deal, right? So basically this ends up being true where PIMCO's size makes that information flow critical and makes it necessary for the street to be nice to them, but they don't have to return the favor. So the funny thing that you've hit on here is it ends up kind of helping the retention at PIMCO where yes, it's an extremely toxic culture, but because all of these salespeople have spent years being berated by the trader at PIMCO, the minute that guy tries to leave and get another job the person hiring him at the next job is going to call the street

and be like do you know this guy do you like him what's his deal what's going on with him and if the street's like oh my god i absolutely hate him he's the worst because he's been yelling at me for years the guy's not gonna get a job so it's so hard to leave pimco as a result and you end up basically your only power is as a conduit is as a kind of agent of pimco you're powerful as long as you're there but that power evaporates the minute you step off campus because by your account, PIMCO seems like a relatively miserable place to work where you're essentially, you had people sleeping in cars so they could work from, what was it, like 3.30 a.m. to 6.00 p.m.? It sounds absolutely terrible. In your reporting, you're talking to a lot of the people on the

ground. What was the average, let's say 80s or 90s, what's the average Tuesday looking like for one of these bond traders? Oh, wow. Great question. I should say that the 3 a.m. and the car sleeping was um acute during the crisis and to some extent not that unusual right but i do think the hours were very gnarly you know you're working west coast hours but then people are also just staying east coast hours so they they get in east coast early and they stay west coast late it's very confusing some of them leave to go surfing short but um especially when muhammad and bill both were there there was like a lot of you know face time and needing to be kind of on the desk at all times um i'm sorry what was the rest of your question oh a typical tuesday yeah what's what's what's

tuesday looking like at pimco because it sounds like there might be an 8 a.m conga line but other than that it might not be a super pleasant experience yeah so the 8 a.m conga line i think was less frequent than it sounded but um basically you have you would get in really early you would know what economic releases and you know corporate releases are coming that day you need to be on your game with all of your trades you need to know every single thing that's in your portfolio because at any given moment bill gross can pop quiz you or someone else could god forbid you are you know scouring the market for more good things so that you basically are on your toes monitoring everything you've already bought or that your predecessor bought and left you with

and you were looking for new things and monitoring the market and trying to keep track of all of that you have probably an investment committee meeting midday um there's a little break at about 10 ish a.m where bill gross might have gone to yoga and you could like have a snack or something or maybe chat quietly with your colleague um but the rest of the day you know you're sending bloombergs and harassing the street and trying to get a better execution and fighting the next guy for basis points. You said talk quietly. And I think that was an interesting point about the culture at PIMCO, which is that Bill Gross wanted no speaking on the trading floor. What were some of the interesting rules that you found and how did that affect people's work at PIMCO?

So, yeah. So, Bill didn't want talking on the trade floor. And so, there was no talking. um and occasionally there was um a little outburst you know if you're constantly supposed to be strong-arming the street every so often that means that you need to be you know yelling at them and so people would kind of whisper yell but then other times they would put on a little show um and there's also you know i think it was um confusing for some people when they got there because you know this person's three feet away why can't i just talk to them but it's you know bloomberg's news is not actually dissimilar in this way we emailed all the time i was there for six years and so i was like oh no this makes perfect sense why would someone speak when they

could email like i don't oh seems really uncouth to use your voice um so it's it's funny how fast that becomes kind of second nature um bill gross also didn't want eye contact um and this may be related to you know he said in later years that he was he's been diagnosed as being on the autism spectrum so that um you know is a trait of of asperger's which he has so that's probably you know some of these things are related to his intense focus and his his kind of neurodivergence there. But yeah, I mean, I think it created, there was a little bit of a bubble on the mortgage desk where those people did make noise, right? Dan Iverson laughed and Scott Simon had this booming voice. And I think Bill Gross calls him masculine in the book. And it's like, yeah, they made noise,

but they had the returns to back that up. And so it was kind of like, oh, it's annoying, but we'll tolerate it. They can get away with it. Let's talk mortgages for a sec, because on the great recession, you're right. PIMCO started the party, but famously into its great profit, it was first to leave. What did you mean by that? So again, PIMCO was just early to mortgage investing and they were better at it than their peers. And I had this sense that their enthusiasm and their outperformance in that market did help to grow that market to some extent. Peers saw them doing it and saw them doing so well and they were like, well, maybe I can do that. And I think that in the 80s, they held a really substantial portion of the outstanding

a mortgage-backed security market. And over time, I think that's gone down because so many competitors have entered. People have gotten wise to the fact that you can make a lot of money in this market. So I think that enthusiasm for and demand in the mortgage market helped to grow it and then helped to attract more people who wanted to participate, which also helped to grow it. And then that expertise also helped them see the crisis coming, see the fact that at some point, homeowners were not going to be able to sell to the next person and that their mortgage would be too much for them to pay. And I think, you know, they traded around this pretty, pretty cleverly. You know, a lot of people did kind of swing for the fences trades and some of those worked out

great and some didn't. But PIMCO just ratcheted down on risk and managed to kind of hunker down while the crisis was happening, was beginning. And then they were better positioned on the other side as well. Was that because Bill Gross was sending his employees essentially out to look at these houses? Was he looking at the credit risk? What was he looking at differently? so you know a lot there are a lot of people that i think are credited with this um foresight one being paul mccauley uh a great economist who was at pimco and who was a disciple of hyman minsky and and said you know people are reaching you know as we get further and further from the last crisis our memory of it fades and we reach for more and more yield and more risk and we're like very

comfortable and then all of a sudden there's this moment that comes where all of it starts to break down in the market spiral um and he was he was definitely preaching about that very early and And then, yeah, I think the mortgage team, I don't know that they would say that it was the trip out to visit the various locales that gave them the insight. I think there was a bit of frustration on the desk that they had to actually go do this. So Bill Gross got this idea. We shouldn't just look at our Bloomberg terminals and our data providers. We should go out into the world and see what's actually happening out there and see if it's really as bananas as it seems. And I think as a reporter, that's what we do. There's shoe leather reporting and you want to

get out there and talk to people and see what it's really like. And there's a lot, a lot of value in that. But there's also a question of like time investment and to what extent this was like the best use of time for the mortgage desk. A lot of people on the desk were like, I already know what's happening. It's my job to know what's happening. Why are you sending me? This is kind of a waste of time, but they just did it. And I think they did get some access to more and better data as a result. So, you know, maybe it was worth the time investment, but yeah, he, that was a, that was one of the, um, insights was the, the ability for the mortgage just to say, you know what, I think this is all, this is all going to come crashing down sooner or later.

And maybe, maybe this speaks to Bill Gross as a leader, but it was also him asking people to do things that he himself would not do, which is very often traveling for work. Yes. Yes. He definitely delegated that. And I think when we're talking about PIMCO and its relationship with the great recession and basically why it came out with its hands clean, And a lot of the answer also involves its relationship with the government. One of my favorite passages from your book, The Bond King, is, quote, Gross proved that if it had the right factors and the right environment, it was possible for one man to control the fate of governments, to bend markets and politicians to his will. What an inspiration.

So let's talk about that inspiration and where it started, because it does relate to the Great Recession, and that's essentially buying Mexican debt. what how did how did pimco create that relationship with the federal government so it knew that when it bought debt there was probably someone helping them on the back end so yeah i mean governments fund themselves in the government debt markets right this is a major way that they create you know money and and and pull in revenues right so when you're selling bonds necessarily someone has to buy them. And so there's this natural role where if there's a big buyer in debt markets and you're a government, Mexico, the US, Brazil, you kind of know that you need to have them on sides, right? You need to have them happy enough with you to buy your bonds at a level that you're

comfortable with. So this shows up, the instance that you're referencing is this 1994 problem where Mexico was having a really hard time funding itself. It kept doing these auctions to sell more debt and it kept those auctions kept failing and you know things were getting worse and worse and you know when one auction fails it's like very nerve-wracking and then when another one you know you have the ability for this to really spiral and so pimco is looking at this and they see these 20 yielding bonds that you know if it works out those are 20 yielding bonds if it doesn't work out okay okay that's not great but there's something of a self-fulfilling prophecy here where if pimco could step in and buy those and stop an auction from failing then you have kind

of a morale shift right then somebody stepped in and that's exactly what ended up happening they bought all of the bonds at auction and there was this rumor let oh somebody big stepped in it must be the government it must be some kind of external you know maybe it's the imf maybe it's a bailout maybe it's treasury it was just pimco but you know they were able to there's this there's this joke on the emerging markets desk that oh you know maybe the central bank of brazil did something but the central bank of newport beach thinks you know another thing and so they were functionally as influential as a government or as a central bank. And that, yeah, that's an odd symbiotic relationship that I feel like is maybe poorly understood in the mainstream. And maybe like

one of those agreements that we made by accident where we're like, Oh, I guess that is how that works. Yeah. I mean, it started with not started, but one that they would also have, like they were there to help with pricing too. So they were like, Oh, we're, we're kind of a friend here. And then, um, then they end up saying they're able to, as you say, kind of look around the corner with um trades like aig debt where hey we'll buy this very distressed debt but also we know that help may be coming um he was also bill gross was pretty good with relationships too um and one of which was hiring alan greenspan as a consultant uh for his company after he came out of the federal reserve how did those kinds of hirings um affect the company and do you think

that ultimately like did that hurt americans in the process when you have that revolving door between government and pimco oh i mean i think the revolving door is not great i i it's hard because what's the alternative? Is it just like you vow to be a monk anytime you join public service? I mean, we have this in journalism as well, right? And I think that's tough. And there is also people will talk about the expertise necessary. We want people at Treasury and the SEC and the CFTC, yada, yada, to be well-informed and to know what's going on in these markets. We don't want them to be kind of, well, hey, we don't want ignorance. So I find it a little more nuanced than maybe I should. But it does seem like if you're going to regulate somebody real

soft because you think that there's a job for you on the other side, a very lucrative job for you on the other side, yeah, that's not good. That's fundamentally not good for a government, for taxpaying, for trust in institutions, all of those things. So I don't know. I mean, maybe there should be some kind of bar. I mean, people have floated the idea of barring people. But I do think it's great PR until it isn't. I think one thing that PIMCO encountered was the cozy government relationship looking so powerful was super cool during the crisis. And in the aftermath of the crisis, the tone started to shift where people were like, wait, did you just front run the government and you told us about it out loud? And you were like completely upfront about that. And

we were like, fine with that. And then you had the rise of Occupy as well. And the threat of the SIFI regulation, which is to say they were considering making asset managers, dubbing them you know, systemically important financial institutions, which would have come with a whole host of new regulations, which would have been super expensive and would have been a huge bummer for profits. So, you know, there was a tone shift, right? Where hiring Alan Greenspan was super rad and cool and kind of a flex. And then it stopped being cool to be quite so cozy. Hiring Alan Greenspan is a flex. A lot of the things we're talking about are things that retail traders, you know, retail investors, regular investors can't do.

What do you think the ultimate lesson from the story of Bill Gross is for, you know, an average person investing in some stocks and some 401ks. Is it what he did as a trader or is it rather, you know, I think one angle might be his obsession with money and returns and how that never leads to fulfillment. Oh my gosh, that's such a good lesson. Yes, I think first and foremost, you're right. It's, you know, he talks about asset management, being the bond king was really a bid for fame and was a vehicle for what he really wanted, which was fame, which was sort of to feel loved. You know, that was also a vehicle to fill this kind of hole in his heart in a way. And I think we all have that hole in our heart, right? Like everyone loves to check

their notifications or whatever. Fine. But it is like, you know, you're never going to be happy. You're never going to reach, like, you may think that there's some threshold level where you're going to be like, oh good, I've made it. And I feel better now about my life and my finances and my self-esteem and all of these things. But there's, you know, everyone that I've talked to basically that has reached that level, you have to have some kind of external validation or some kind of ability or sorry, internal validation. Like you can't use that as a measuring stick. there's no dollar amount that's going to help you. So that's definitely the number one lesson, I think. And that's a hard one, right? That's kind of a lifelong journey for people to figure out.

The other one, I think you're right, is that kind of structural approach to investing is the genius of Bill Gross, I think, is this ability that he had to see those market inefficiencies 40 years ago that were real, right? And it's hard to suss out if you're onto something that's real, but the genius is being able to see it back then before it's been proven and sticking with it for so long. And this to me is kind of the secret sauce of his outperformance is those threads of things like mortgage-backed securities, taking more credit risk, duration, these things that add up to so much outperformance over time that the only reason he was able to do that was because he stuck with the strategy, even when it was a losing strategy, right? Some months are going to

be bad months and you just stick with it because your strategy is good. And that's the gambler mentality. That's when you're like, I got to get the true odds. So I think that's super valuable. And that takes, I don't know, a lot of belief in yourself and your systems and confidence that I think is also hard to come by. But that would be, I think, the best investing lesson. And then final question. I know we're a little bit over, but I do want to ask it is what's going on with Bill Gross and his neighbors? Because I think you have this guy who is managing trillions of dollars, trillions of dollars on top of the world. He's the bond king.

He's awesome. He's Joe Cool. and then now he's in a place where he's uh flipping off his neighbors blasting 50 cent on the beach yeah so again to the point of not it not ever being enough and not being able to rest he has gotten into a dispute with his neighbor where he and his wife um installed a chihuly sculpture in their yard and um it got damaged and they put a protective like netting thing over that looks kind of like a soccer net and the neighbor was like do you mind that's in my you know sight line to the ocean. I really want to just look at the ocean and not this soccer net. And you don't have

it permitted correctly. And it escalated to, as you say, 50 Cent, the theme song from Green Acres and from Gilligan's Island on repeat. And one thing I think is interesting about this is there's something gratifying to me as a reporter that Bill's behavior, while surprising to me, was also in keeping, right? Like he's playing that music at 60 decibels, which is the maximum legal permit in laguna so he's not breaking the law he certainly would never break the law he's right at the edge and and so it it was a surprise to me that he was actually convicted of harassment because um he's just generally been so good at knowing exactly what the rules are and being like oh did you have a problem with how i conducted myself within the legal limits i'm so sorry for

you um which again like who among us but um yeah it's it is sort of an interesting um chapter that you wouldn't have expected from the Bond King, who had so much influence and so much power, and now he's in a pretty petty dispute with his next-door neighbor. Mary Childs is the author of The Bond King, How One Man Made a Market, Built an Empire, and Lost It All. As Bill Gross would say, this was controlled, manageable fun. The best kind. All right. Thank you so much, Mary. Thank you.

As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.