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with just two hundred dollars in his pocket the young william hung grills dreams of making a fortune in las vegas camping out at a fight dollar annette motel off the vegas strip options were limited for belle groves after a near fatal car accident the 22 year old belt grove spent almost entire year in the hospital to pass the time he started reading about the art of gambling then he came across a book written by mathematician edward thorpe it's called beat the dealer his book showed how you can beat the casinos at the game of blackjack he read the book cover the cover it became his holy bible gross feels strongly that it is possible to get rich by gambling the objective card counting is to tell the player whether he's got the advantage or whether the casino has the advantage if the player has the advantage then he makes a big bet if the casino has the advantage the player makes a small bet so the player wins the majority of big bets and he loses the majority of small bats typically but comes out ahead in the long run to most people getting rich by gambling is a fruitless endeavor but not to bill gross he feels a sense of confidence backed by kind of a mathematical certainty methodically gross turned his initial 200 stake into ten thousand dollars within six months enough to pay for his mba tuition at the ucla perhaps mostly well-known bond investor belle gross really is in a league of his own spilled pimco from the ground up into the world's biggest bonfire yeah well he's beating 90 of the maynard chapter he's so large that in some ways he creates his own reality at this point his court portfolios has risen at an average analyze rate of 10.6 percent since 1973.
think about that for a second his returns are comparable to that of a stock market index but bill gross had a only three negative years with average returns of 2.3 percent but a stock market can go down as much as 23 percent not knowing it at the time belt groves was born with the asperger's syndrome i'm an asperger and aspergers can compartmentalize they can operate in different universes without the other universes affecting them as much as i've understood it it in in my uh experience it's allowed me to stay at 30 000 feet as opposed to be on the ground i think it yeah i think it was very important because it allowed me to take what we call the secular approach at pimco the long-term view and it was it was a good view to take as an asperger now if if i was a quantitative traitor hedge fund manager day to day minute to minute boom not so good maybe because of asperger's school was easy for grills he was accepted to duke university one of the most prestigious schools in america hoping to learn more about his own mind he chose a psychology major but in a cruel turn of event just before he graduates a severe accident flips his life upside down in his senior year at duke university the 22 year old girls was involved in a near fatal car accident when his nash rambler skated head-on into traffic on an icy road he was thrown through the windshield and three quarters of his scalp was sliced off he spent the rest of a semester in hospital receiving multiple skin grafts and treatment for collapsed lawn to pass the time during recovery the mathematically inclined girls started reading a book called beat the dealer that purported to have a new system for blackjack players grows like the argument that consistently placing smaller bats with an edge will lead to a maximum return in the long run you know ran a foul of my old blackjack maxim that said you can never bet more than two percent of your of your steak within six months he turns the initial two hundred dollar stake into ten thousand dollars a considerable amount of money in the late 1960s it was then in there gross knew his future was with business in particular he wanted to try his gambling skills in a different kind of casino the financial market but just before he was ready to pursue his mba with the money he earned tragedy struck again his best friend from college almost a brother to him was killed during the vietnam war this evening i came here to speak to you about vietnam to honor the memory of his fallen friend gross decided he will voluntarily join the military in spite of the fact that he wasn't drafted for the next three years bill gross was sent to the deep trenches of the vietnam war serving as assistant chief engineer abroad the uss diazenko transporting navy seals to landing sites along the coast of vietnam he left the navy in 1970 with a tech combat and vietnam active service ribbons as he originally intended he enrolled in the ucla's mba program the 1973 oil crisis paralyzed the u.s economy the crisis has shattered business confidence wall street has slumped economists are forecasting the biggest recession since the great depression the 1970s saw some of the highest rates of inflation in the united states as a result the performance of fixed income investments was entering the worst phase in decades i had a friend who was a bond trader at merrill lynch in the 1970s need a job as a trained conductor at night because he had three kids and couldn't support them and what a bond trader made while was clearly not the best time to become a bone trader gross felt he could bring his unique insight as a gambler to the business of bond trading i go well i go you know mom i guess i just said mom but dad was there too i said you know mom i'm going to be the best portfolio manager in the world and they looked at me like i was from mars but somehow i knew that was my goal i didn't know what was going to happen but that was my goal in 1971 bel groves was hired as a junior bond analyst for pacific mutual insurance company when growth started at pacific mutual in 1971 bondsmen really traded at that time they were kind of captain vaults but because of inflation being so high it was almost impossible to make any real returns on bonds but girls had a solution active trading the idea of actively treating the bonds on a daily basis sounds risky especially in the 70s but girls argues that by doing so they could anticipate broad swings and inflation and also have the option to hatch the risk you know we got in early we got into financial futures very early in the early 80s when people uh and clients thought that you know treasury bonds and treasury bill futures were akin to soybeans the treasury futures versus treasuries was was sort of a riskless arbitrage and so we got there early and there was a lot of alpha generated from that not necessarily from brilliant long-term interest rate call persuaded by a strong argument his boss at pacific mutual agreed to given 15 million dollars to form a bond portfolio by the end of 1970s pacific investment management co aka pimco was born to give an idea how crazy this sounds it's almost like asking your parents savings to date trade them although it seems risky to normal people bill grills had a different idea of risk backed by sound mathematics girls believes strongly that as long as he follows the gambling principles his portfolio will always be okay first for every bet there must be an edge meaning 51 chance of being right secondly each bet must be properly sized this means placing small bets on less certain situations and bigger bets on more certain situations bet sizing is perhaps most important concept in gambling but it is often overlooked by traders in finance it's the only important question basically what what are your bad sizes so like all you know about poker goes through your head when you're picking your bad sizes it all sounds good in theory but none of that matters if a growth fails to deliver in the real world since the bonds were really heavily traded the market was relatively eliquid pimko became one of the earliest active bond traders building and selling various positions such as mortgage-backed securities tips bond futures and convertibles in the early 80s when people uh and clients thought that uh you know treasury bonds and treasury bill futures were akin to soybeans you know you had to go out with chris dialis and i went out with a t-shirt said you know the wave of the future but the client said uh is this like uh soybeans or are you trading corn um but the spreads were enormous in terms of value and on and on and on with tips and with global bonds we got in early just like gambling gross was playing a zero sum game when the rest of the market didn't know the game existed four years later his bum portfolio grew to 40 million dollars the strategy paid off in 1975 a year which passive bond holders struggled girls turning a 17.6 game followed by nearly 18 in 1976 over the next three decades he continued to outperform the fixed income world with an array of unique trading strategies by the end of 1999 pip go grow to three billion dollars at the same time bell girls saw a huge financial bubble actualizing he warned in his monthly investment column that a dot-com bubble would soon burst but few listened but girls couldn't care less it is because he understands a crash in a stock market can be a good news for the fixed income market that same year he and his partner sold pimco to alliance for 3.3 billion dollars he received 233 million dollars for his stake an alliance also agreed to pay him 40 million dollars in retention bonuses now rich as ever belle gross enjoys living a lifestyle of luxury according to the wall street journal gross bought a house in southern california's famed newport beach with the intent of demolishing it the paper says he then intends to build a new one although belle groves relishes his immense wealth and inflated lifestyle he's still grounded in the reality of the market one morning in 2005 while standing on his head he saw a vision the collapse of the u.s housing market pimko is in southern california bill girls discovered that housing prices around that area was climbing into the stratosphere the fact that someone in modesto california would buy a home for 500 000 that had sold 24 months before at 250 you know what was simply a mistake as were the dot coms as were you know many stocks and as were many uh levered bonds uh and bond structures by the way uh simply 12 to 24 months ago the subprime's been the prime example so to speak at 500 a ticket they've come to hear how to buy their very own piece of the american dream he wonders is this happening all around the country pimco dispatched 11 mortgage analysts to 20 cities to find out they posed as a prospective home buyers and drove around with unsuspecting real estate agents and mortgage brokers who told them how easily they could get a home loan in an october 2005 letter to investors he made one of the most precinct calls of the last decade warning of the looming subprime mortgage crisis but everyone ignored him again what is the worst case scenario if in fact we were to see prices come down substantially across the country well i guess i don't buy your premise it's a pretty unlikely possibility we've never had a decline in house prices on a nationwide a nationwide basis while wall street was losing big pimco's total return fund was at 4.3 percent in 2008.
pimco avoided the entire subprime crisis and you know our 2008 numbers relative to everybody else were more than outstanding and you know set the stage really for the next 10 years however the possibility of a total collapse of the entire financial system was still imminent the u.s government was desperately trying to put out the fire they wanted to bail out the banks without creating a moral hazard a moral hazard happens when someone takes bigger risks because he knows he's going to get bailed out instead the officials come to build girls for help asking him to bail out the banks together as republican nationalizing banks goes against everything bell girls stands for but as a bond speculator this could be a once in a lifetime opportunity to make huge profits bell girls negotiated a deal with a government that is almost risk-free and guaranteed a 25 return at the end of 2009 he had invested 61 percent of funds money in mortgage bonds what makes this investment almost risk-free is that if things go south the government is responsible for repaying all the debts on pinko's behalf following the collapse of wall street in 2008 gross emerged as one of the nation's most influential financiers year by year under the leadership of bill grills pimco kept growing having trillions of dollars under management making bill grill's billions in personal fortune as well he is literally the bond king and when you're the king everyone wants your throne in a surprise move pimco's bill gross has left the company he founded more than four decades ago gross built pimco from the ground up into the world's biggest fur his departure capsicum of turmoil at the company in which it was riven by destructive tensions at the top due to a power struggle in 2014 belle groves was kicked out by the very company he founded so the executive committee and alliance at some point said uh you know this guy has got to go so so the lesson they're in is is that is the not to pack the executive committee or pack the supreme court but to make sure you have some friends on it i didn't have a i didn't have a single supporter on there furious bill grills sued pimco and received 81 million dollars payment at that same year bill gross joe and pimco's vegas competitor janice henderson to manage janice henderson's global unconstrained bond funds in many ways this is a classic bill gross move i mean this guy is not interested in leaving and uh it's sort of quietly going away he had something to prove but in 2019 at the age of 74 bill gross officially retired from active fund management you
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