Many of you will recall that Bill Gross, aka The Bond King, built the world’s biggest and most successful bond management firm, PIMCO. Many of our clients use some of their bond funds; they really are an excellent organization. And we all remember the headlines last year as Bill quit on a Friday morning just before being ousted by the Board.
Our Investment Committee had diversified our core bond holdings several years earlier. We decided to have two funds to lessen what we think of as “manager risk”. In the years since, the two funds have behaved differently year to year, having both lessened the impact of short-term fund specific performance issues. So, when confronted with the PIMCO drama, we were feeling relatively sanguine.
The financial press did its usual panic routine and unsophisticated retail investors fled the Total Return fund. We and Callan and pretty much all of the institutional investment world put them on “watch” and proceeded to have a close look at the four P’s: people, philosophy, process and performance. Bottom line is that they continue to be a very deep and solid organization, now more than ready to move on without their founder and superstar.
So, what does this have to do with today’s topic?
Well, as good a bond manager as Bill was, at times he was a little strange. Some of the client letters he wrote were borderline bizarre, very new-agey and abstract. Deep navel gazing coupled with an air of something close to omniscience. And if there was a meaningful message in there, and you managed to plow through the whole letter looking for it (I seldom could), it was still hard to discern.
Our point is, we promise never to do that! Even if our topic sounds like it might be headed in that kind of direction, trust us, our letter won’t be. We have a very specific focus: we are seeking to assist you in some important way in your financial lives. It might be a tax or planning topic, or a broader look at the world and the markets, but we will always skip the self-indulgent stream of consciousness, the prognostications of people who believe they see into the future in a way others cannot, or just sharing opinions. None of that, because we think it would be of no use to you.
As always, we invite your feedback. If we fall short in achieving our stated goals, or if we communicate something of great interest, please let us know!
So, what is the alternative universe topic?
I heard an interesting discussion the other day, two media people and an interviewer.
All three agreed on something both interesting and profoundly disturbing. People choosing different (major) media for the flow of information they received could end up hearing completely different news. Bad enough that stories can be presented with a slant, but worse, many stories would be completely missing from one source and covered extensively in the other.
They cited The New York Times and Fox News by way of contrast. One of the media people favored each, but all agreed the coverage was profoundly different. A striking example of an issue receiving differential treatment was economy — some sources virtually ignore the serious ongoing problems, while others report them. Likewise wars and conflicts around the world, in some places you would get the impression they are “not so bad”.
So, we have heard all about “media bias,” and different people can choose different things to listen to, so what? What does this have to do with my financial affairs? Why are you telling me this?
The answer is simple. It can be hard to believe in a long-term financial plan and maintain a disciplined investment program if the world stops making sense, if it surprises you and causes you to lose all confidence. Overconfidence can lead to disillusionment all too easily if you are only hearing positive spin. Likewise, if you are hearing death and destruction every day, you can find yourself losing all hope.
Reality lies somewhere in between the extremes. I am not suggesting any particular media source is extreme; I am suggesting that a balanced picture of reality can best be obtained by consulting multiple sources, looking for different points of view, including some you don’t like. Just my suggestion to you, diversify your sources. Find something that you dislike and give it some thought.
In our next letter, we will continue this discussion with a look at an important and obvious manifestation of the bifurcation of the economy into parts doing extremely well and parts doing poorly. Some of our biggest cities are thriving almost beyond anything you could imagine, while millions of people are permanently unemployed and labor participation is at historic lows. Wealth and poverty side by side, with not a lot in between.
Leaving the politics of all this aside, it is important for a balanced perspective to recognize the positive parts of the domestic and world economies; even as we face terrible difficulties, there are a lot of positives, a lot of businesses doing well and reasons for equities to produce good returns.