Investing Lessons From Bill Gross, "The Bond King"

Mary Childs, author of The Bond King: How One Man Made a Market, Built an Empire, and Lost It All, joins Motley Fool producer 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.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on April 10, 2022.

Mary Childs: Being The Bond King was really a bid for fame and was a vehicle for what he really wanted which was fame, which was to feel loved. That was also a vehicle to fill this hole in his heart, in a way. I think we all have that hole in our heart, like everyone loves to check their notifications, or whatever, fine. But it is like you're never going to be happy. 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. Everyone that I've talked to basically that has reached that level, you have to have some internal validation. You can't use that as a measuring stick. There's no dollar amount that's going to help you.

Chris Hill: I'm Chris Hill. 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. 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 onetime blasted rap music at a neighbor's house in what appears to have been an act of vengeance.

Ricky Mulvey: You start the book with something that might be a little controversial for the fools listening now because Motley Fool folks, they really like stock.

Mary Childs: They like stock, I know.

Ricky Mulvey: We like stocks a lot. This is like being a fan from Michigan coming into Ohio Stadium. But you start the book saying, "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." What is the case for that other than shareholder equity being lower on essentially an income statement than company debt repayments?

Mary Childs: Yeah, that's a big part of it. Bonds are higher in the capital structure and therefore earlier claims. But also, I feel like the world and stocks have this too, have that complexity, but maybe it's more of a demographic of my sources question where the people that I was talking to in the Bond wrote, I started out covering credit default swaps, and they were post-crisis, they had been blamed for the crisis and the people who traded them that were left. Certainly there have been already a wash-out by that point. They were really like Excel spreadsheet heavy people and just excited to tell you about their market and very lake model oriented. That's not to say that stocks people aren't, that there is an optimism in stocks that I don't understand, and an optimism in stock managers that I don't like. It's frustrating as reporter sometimes like a hedge fund manager has a trade that they want you to write about. Some of them have a tendency to just shake you until you understand it, they just want you to know what their trend is. They want you to read the story and I'm like you just want to use me as a tool for your trade, like my only use then is as a conduit. That's my least favorite reporting because I don't like being used as a tool and the ability to bring my curiosity to that. It's just frustrating and I didn't enjoy that side of it. I think part of it might be just like from a journalistic perspective, but also the complexity, 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 can breach covenants, you can engineer more. I just feel like there's more ability to get into the nuts-and-bolts in a company's financials like that.

Ricky Mulvey: That's from the institutional side, but maybe not so much for like a retailer. I don't think you get to do that with bond investing. Your best hope is to buy these bond ETFs. It's intensely difficult to buy single company debt. I think bonds are interesting to give some credit to bonds is like they access this dark matter in the financial world. What's that?

Mary Childs: I like that we're opposed. We're like really on different teams and that's OK. That's good. Yeah, exactly. Oh my gosh.

Ricky Mulvey: Throwback though, it strikes me as this dark matter where the stock price stocks are so much more visible, but there is so much more like bond money out there, because it's on an institutional side, you don't hear about it as much. Also, 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 there expectations for what they're going to get out of a bond or significantly lower than, let's say a share of Amazon.

Mary Childs: There's something tangible to bond investing that I love where you can just really wrap your whole minder out it like you're not trying to go for infinite growth, maybe that's like a feeling of my imagination where I'm not on board for the eternal, infinite story I want to understand, 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 cents on the dollar. That makes perfect sense to me, I can get my head around it. But they're like to the moon stuff I'm like, and then what?

Ricky Mulvey: Compound interest is cool, and then like what you have stocks that you're able to like, I don't know. I think stocks from here cool because it's a value of my time that I can put into a company that represents ownership. Speaking of the bond market though, it's starting to [laughs], I think the thing that's so wild to me is you talk about how it's very like it was the sleepy cottage industry with two people who really started it, that was Howard Rakoff and Bill Gross. First what it Howard break-off figure out, and then what did Bill Gross do that others did not figure out in the early days.

Mary Childs: It's radical to think about. It's a little difficult to comprehend in our era, but back then, bonds just weren't traded. They lived in a vault, you clipped your coupon, you got your interest payment periodically and that was 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 as a result the value of these bonds sitting in the vaults, obviously, they were just getting eroded. Howard Rakoff had an interesting, he got his masters and he learned in that there was like more to do basically. It got really stuck on 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 do a little discount and go buy a new bond that's going to be better for you. It really got stuck in his head. He started to see it everywhere and he started 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 them, because he might have this idea but you can't trade by yourself. He eventually found Bill Gross's boss Ben Ehlert and was like, hey I have this pitch, I got this idea. Ben was like, OK man, but I'm not super interested, but maybe you want to talk to the young guys at my office that these two guys who work for me, and Bill was one of them. Obviously that ended up being a very consequential meeting for all of us because the more or less, with the other people that Howard and others recruited, that's the patient zero. That's the foundational moment for the active bond market as we know it today, so Bill loved it, he ran with it.

Ricky Mulvey: What's the call? Is Rakoff asking these investment firms to create entirely new departments? Is he asking for people who are already taking care of the bonds, add-on, added responsibilities? Like I still don't understand what the pitch was.

Mary Childs: Yes. In Bill's case, he worked at an insurance company, and the thing that insurance companies were doing with bonds, which makes a ton of sense, is if you are insurance company, you know that you have liabilities that will come, you know that you're going to have to make payouts on the claims that you sold. All these policyholders are giving you their money and they're going to need money at a certain time, and as an insurance company, part of your job is to know when those payments are going to be demanded. You have actuary tables predicting when everybody is going to die, and functionally you can line those tables up and other insured things. You can line those tables up with the schedule of bonds, so you'll know when those interest payments are coming in and when your capital is being returned and it's super reliable. The point was, just to check that off and just match things really nicely like a game of Candy Crush, where everything would evaporate itself and you would offset all of that risk and know when your money is coming in and when your money is going out. That was the function that Bill Gross was serving, he was helping to analyze creditors as they came in and he was clipping those coupons off the bonds, asking for the interest payments as they would do.

Ricky Mulvey: From the beginning he really enjoyed having that like let's say one percent edge squeezing pennies out of the dollar. Did that come from his card counting days?

Mary Childs: I think so. He's naturally pretty conservative in terms of risk-taking sometimes. But like I think, yes, he learned in Vegas 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 Thorp, 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. From that I think he did learn that your statistical advantage is really never going to be better than 51 percent and when you have 51 percent 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. Over the long term, that's how you win.

Ricky Mulvey:  She doesn't really like gambling. He likes systems where he has a 51 percent edge which is very different from having a couple of drinks at the craps table on a Friday night. That played into a lot of the total return fund and how he found what was called Structure Alpha. 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 a little bit of it was luck but a lot of it was skill

Mary Childs: Yeah, I think absolutely. At one point he likened this to me to the pie crust, Structural offers the pie crust and then the filling is like your day-to-day calls and buying good credits and the investing that you and I think about, picking names over other ones. But the crust is this more durable, reliable but very, very thin if you will, [laughs] not to lean too heavily, the across metaphor.

Ricky Mulvey: That's fine. Let's stay in pie.

Mary Childs: Let's stay in pie. I mean, I love it personally. But basically structural offer is like a couple of tenants that he found were market inefficiencies that you could really lean into over time. 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. 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. People are more risk-averse and are miscalculating what exactly they think is going to happen at what time in the future. That ties into also the selling ball, he was very, very into selling ball. He was always figuring that. He was happy to write this insurance if other people wanted to sleep at night and pay him for the privilege, he's happy to take that premium.

Ricky Mulvey: What is selling Vault?

Mary Childs: He would typically write a strangle or it's basically finding different ways to embed options into your investing, I don't know if this is in portfolio. 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. It was like all the banks were talking about with our clients in like 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. If he's right he just gets to keep the premium. If he's wrong he has to face something else.

Ricky Mulvey: He was also really good at pricing things. Some of that was essentially finding odd lots of, let's say 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?

Mary Childs: Yeah, this is like a little pricing fluke that they managed to explain. What happens is, especially with mortgage-backed securities, because people pay down their mortgages, they move, they buy a new house and in doing so they pay off the old bond. The pool of mortgage-backed securities, it'll end up getting gnarly. It'll decay and shrink down in a way. That ends up making, so it gets smaller and smaller as more and more people pay off their mortgages or get new ones. In the end you end up with this misshapen 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 floating around and annoying and unloved.

PIMCO had the insight that these are just smaller versions of the larger thing that existed before and if you like to before you price so like it now and that it is worth the trouble. One of the things that I find about PIMCO is that they do go to that extra mile in this and in other cases, it just seems like the other people are like, it's not worth the marginal effort and PIMCO is like, no, it is, I'm going to do it. This is one of those cases where they decided to do it. But the thing you're honing in on is this pricing differential. Where you might buy an odd lot at a discount because they trade below where they may be should because people don't feel like dealing with them. But the pricing mechanisms, the systems that we use to value our portfolios join account for that. You would put it in the system and bloop, it gets valued at the round lot price. You get an instant paper gain which is great if you're trying to establish say, an early track record in a new ETF for example.

Ricky Mulvey: 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?

Mary Childs: Yes. PIMCO was always from the Gecko much harder on Wall Street. A lot of Wall Street coverage, their 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-quarter call when this new issue that's going to pop in secondary, I want them to call me first. You keep up this good relationship. You go to golf outings, you go to fun dinners, whatever. PIMCO just didn't really do that. 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 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. The funny thing to me is that they believe this more or less before it was true, they were a pretty small shop. Relative to the size of the bond market they were still relatively large. But they were much smaller in the '80s and Bill Gross already had this view. I remember one sales guy had lunch with Bill Gross and Bill told him that you're going to need my information flow. Then I was like, sorry, who are you? What? But of course [laughs] it ended up being completely the case. They also are necessary in those new issues where the street needs to, the underwriters who are building new issues to sell a new batch of bonds, they need someone like PIMCO or BlackRock to anchor that new deal. Basically this ends up being true where PIMCO 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. The funny thing that you've hit on here is it ends up 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? If the streets are like, Oh my God, I absolutely hate him, he is the worst because he's been yelling at me for years, the guy is not going to get a job. It's so hard to leave PIMCO as a result and you end up basically, your only power is as a conduit, as a agent of PIMCO. You're powerful as long as you're there but that power evaporates the minute you step off campus.

Ricky Mulvey: Because by your account, PIMCO seems like a relatively miserable place to work where essentially you have people sleeping in cars so they could work from, what was it? 3:30 AM to 6:00 PM. It sounds absolutely terrible. In you're reporting, you're talking to a lot of the people on the ground. Let's say at '80s or '90s what's the average Tuesday looking like for one of these bond traders?

Mary Childs: Oh, wow. Great question. I should say that the 3:00 AM and the car sleeping was acute during the crisis and to some extent not that unusual. But I do think the hours were very gnarly. You're working less coast hours, but then people are also just staying east coast hours. They get in east coast early and they stay west coast late. It's very confusing. Some of them need to go serving short, but especially when Mohammad and Bill both were there there was a lot of face time and needing to be on the desk at all times. I'm sorry, what was the rest of your question? Oh, typical Tuesday.

Ricky Mulvey: Yeah. What's Tuesday looking like at PIMCO because it sounds like there might be an ATM conga line, but other than that, it might not be a super pleasant experience.

Mary Childs: Yeah, the ATM conga line, and I think it was less frequent than it sounded. But basically you would get in really early, you would know what economic releases and 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 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. 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. There's a little break at about 10:00 ish AM where Bill Gross might've been to yoga and you could have a snack or something or maybe chat quietly with your colleagues. [laughs] But the rest of the day you're sending Bloomberg's and harassing the street and trying to get a better execution and fighting the next guy for basis points.

Ricky Mulvey: You said talk quietly, and I think that was an interesting point about the culture at PIMCO, which is that Bill Gross, what it 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?

Mary Childs: Building one, talking on the trading floor and so there was no talking. Occasionally there was a little outburst. If you're constantly supposed to be strong arming the street every so often, that means that you need to be yelling at them. People would whisper you all but then another hemisphere will put on a little show. I think it was confusing for some people when they got there because this person's three feet away, why can't I just talk to them? Bloomberg's news is not actually dissimilar in this way. We emailed all the time. I was there for six years. I was like, oh, no, this makes perfect sense. Why would someone speak when they could email? It seems really uncouth to use your voice. It's funny how fast that becomes second nature. Bill Gross also didn't want eye contact. This may be related to he said in later years that he's been diagnosis being on the autism spectrum. That is a treat of Asperger's which he has. That's probably some of these things are related to his intense focus and his neuro divergence there. There was a little bit of a bubble on the mortgage desk where those people didn't make noise. Daniel Ivascyn laughed and Scott Simon had this booming voice and I think Bulgers calls him masculine in the book. It's like they made noise but they had the returns to back that up. It was like it's annoying but will tolerate it. They can get away with it.

Ricky Mulvey: Let's start mortgages for a sec because on the great recession you are right. PIMCO started the party, but famously into it's great profit, it was first to leave. What did you mean by that?

Mary Childs: Again, PIMCO was just early to mortgage investing and they were better at it than their peers. I had this sense that their enthusiasm and their out performance in that market did help to grow that market to some extent. Like peers saw them doing it and we saw them doing so well and they were like, maybe I can do that. I think that in the '80s they held a really substantial portion of the outstanding mortgage-backed security market. Over time, I think that's gone down because so many competitors have entered. People have gotten wise with the fact that you can make a lot of money in this market. 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 help to grow it. Then that expertise also helps them see the crisis coming. See the fact that at some point, homeowners were not going to able to sell to the next person and that their mortgage would be too much for them to pay. I think they traded around this pretty cleverly. A lot of people did swing for the fences trades and some of those worked out great and some didn't. But PIMCO just ratcheted it down on risks and managed to hunker down while the crisis was beginning. Then they were better positioned on the other side as well.

Ricky Mulvey: 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 you're looking at differently?

Mary Childs: There are a lot of people that I think are credited with this foresight, one being Paul McCulley, a great economist who was at PIMCO and who was disciple of Hyman Minsky and said people are reaching as we get further and further from the last crisis, our memory that fades and we reached for more and more yield and more risk and we're like very comfortable. Then all of a sudden there's this moment that comes where all of it starts to breakdown in the markets firewall. He was definitely preaching about that very early. Then 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. I think as reported that's like what we do. There's like shoe leather reporting. You want to get out there and talk to people and see what it's really like. There's a lot of value in that, but there's also a question of time investment and to what extent this was like the best use of time for the mortgages. A lot of people on the desk were like, I already know what's happening? It's my job to what's happening. Why are you sending me this is a waste of time, but they just did it. I think they did get some access to more and better data as a result so maybe it was worth the time investment. But that was one of the insights was the ability for the mortgage has to say, you know what? I think this is all going to come crashing down sooner or later.

Ricky Mulvey: Maybe this speaks to Bill Gross's is 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.

Mary Childs: Yes, he definitely delegated that.

Ricky Mulvey: I think when we're talking about PIMCO and it's relationship with the great recession and basically why it came out with it's hands clean, 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 if it had the right factors in the right environment, it was possible for one man to control the fate of governments, to bend markets and politicians too as well. What an inspiration. 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. 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?

Mary Childs: Governments fund themselves in the government debt markets. This is a major way that they create money and pull-in revenues. When you're selling bonds, necessarily someone has to buy them. There's a natural role where if there's a big buyer and debt markets and our government Mexico, the US, Brazil, you know that you need to have them on sides. You need to have them happy enough with you to buy your bonds at a level that you're comfortable with. 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 those auctions kept failing. Things were getting worse and worse and when one auction fails, it's very nerve wracking, you have the ability for this early spiral. PIMCO is looking at this and they see these 20 percent yielding bonds that if it works out, those are 20 percent yielding bonds if it doesn't work out 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 owned auction from failing then you have a morale shift than somebody stepped in. That's exactly what ended up happening. They bought all of the bond that auction and there was this rumor like, oh, somebody big stepped in. It must be the government. It must be some external, maybe it's the IMF, maybe it's a bail out, maybe it's treasury. It was just PIMCO, but they were able to. There's this joke on the emerging market's desk that, maybe at the Central Bank of Brazil did something, but the central bank of Newport Beach thinks another thing. They were functionally has influential as a government or as a central bank. That's an odd symbiotic relationship that I feel is maybe poorly understood in the mainstream, and maybe one of those agreements that we made by accident, and we were like, I guess that is how that works.

Ricky Mulvey: I mean, it started with, not started but one that they were there to help with pricing too. They were like, we're a friend here, then they end up saying they're able to, as you say, look around the corner with trades like AIG debt where, Hey, we'll buy this very distressed debt, but also we know that help may be coming. Bill Gross is pretty good with relationships too, and one of which was hiring Alan Greenspan as a consultant for his company after you came out of the Federal Reserve, how did those hirings affect the company? Do you think that ultimately, did that hurt Americans and the process when you have that revolving door between government and PIMCO?

Mary Childs: I mean, I think the revolving door is not great. It's hard because what's the alternative? Is it just you vow to be a monk anytime you joined Public Service. I mean, you have this in journalism as well. I think that's tough and there is also people who will talk about the expertise necessary. We want people at treasury and the SEC and the CFTC, yada-yada to be well informed, to know what's going on in these markets. We don't want to ignorance. I find it a little more nuanced than maybe I should. But it does seem 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, that's not good. That's fundamentally not good for our government, for tax paying, for trust and institutions, all of those things. I mean, people have floated the idea of borrowing 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. In the aftermath of the crisis, the tone started to shift, where people were like, wait, did you just front on the government and you told us about it out loud and you were completely upfront about that, and we were like fine with that? 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 that immuno systemically important financial institutions which would've come with a whole host of new regulations, which would've been super expensive and would have been a huge bummer for profits, so there was a tone shift where we're hiring Alan Greenspan was super rad and cool and a flex, and then it's stopped being cool to be quite so cozy.

Ricky Mulvey: Hiring Alan Greenspan is a flex. A lot of the things we're talking [laughs] about are things that retail traders, retail investors, regular investors can't do. What do you think the ultimate lesson from the story of Bill Gross's for an average person investing in some stocks and some 401K? Is it what he did as a traitor or is it rather, I think one angle might be his obsession with money in returns and how that never leads to fulfillment?

Mary Childs: My gosh, that's such a good lesson. Yes, I think first and foremost, you're right. 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 to feel loved. That was also vehicle to fill this hole in his heart in a way, and I think we all have that hole in our heart. Everyone loves to check their notifications or whatever. Fine. But it is like you're never going to be happy. You're never going to reach, you may think that there's some threshold level where you're going to be like, good, I've made it and I feel better now about my life, and my finances, and myself esteem and all of these things. But everyone that I've talked to basically there has reached that level, you have to have some external validation or some internal validation. You can't use that as a measuring stick. There's no dollar around that's going to help you. That's definitely the Number 1 lesson I think, and that's a hard one. That's a life long journey for people to figure out. The other one I think you're right, is that 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. 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. This to me is the secret sauce of his outperformance is those threads of things like mortgage-backed securities, taking more credit risks 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. Some months are going to 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. 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.

Ricky Mulvey: 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're this guy who's managing trillion 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 flipping off as neighbors, blasting 50 cent on the beach.

Mary Childs: Again, to the point of 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 installed a Chihuly sculpture in their yard and it got damaged and they put a protective netting thing over that looks like a soccer net. The neighbor was like, "Do you mind? That's in my siteline 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." It escalated to, as you say, 50 cents, the theme song from Green Acres and from Gilligan's Island on repeat. One thing I think is interesting about this is, there is something gratifying to me as a reporter that Bill's behavior while surprising to me, was also in keeping. 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 is right at the edge. [laughs] It was a surprise to me that he was actually convicted of harassment because he's just generally been so good at knowing exactly what the rules are and being like, did you have a problem with how I conducted myself within the legal limits? [laughs] I'm so sorry for you. Which again, who among us? But yeah, it is an interesting chapter that you wouldn't have expected from The Bond King who had so much influence and so much power, [MUSIC] and now he's in a pretty petty dispute with this next door neighbor.

Ricky Mulvey: 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 fund.

Mary Childs: [laughs] The best kind.

Ricky Mulvey:  Thank you so much, Mary.

Mary Childs: Thank you. [MUSIC]

Chris Hill: 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. Don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening. We'll see you tomorrow.