Posts Tagged ‘bill gross’

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To many he is a hero. He is the investor extraordinaire, the man who is now ranked fourth richest in the world, thanks to his all-round savvy. He is, of course, Warren Buffett. But was he lucky?

What about George Soros for that matter? He may have defeated the Bank of England, made a fortune by betting against central banks, and may be attempting – riding on the back of his financial record – to present himself as possessing sound academic credentials, but was he lucky?

Have you ever played that game at a party, when you all stand up, and have to raise either your right or left hand. A judge then tells all those who put, say, their right hand up, to sit down. The rest once again have to choose between right and left hand. The judge decides again which half has to sit down. You keep going until there is only person left. This person is the winner.

With the benefit of hindsight, you can see how that winner made a series of good calls. Let’s say the winner got the call right seven times in a row. What are the odds of that? Well, to be precise they are one in 128.

Of course you know that it was down to luck. If there were 128 people at the party, the odds of any one person wining such a game were one in 128, but the odds that someone might win were 100 per cent.

Now make the game more complex. Involve derivatives and shorting, and leverage and balance sheets. And say the odds of success are one in six billion. In a planet of six billion people those odds will smile on one person, but were they any cleverer than the winner of our party game?

That is harsh. Buffett and Soros are clever. And they are savvy, and there was more to their success than pure luck, but how much was luck, and how much was judgement? How much was down to a particular strategy happening to be the right strategy for the time? In an economy that is steadily growing over time, an investor who believes in a taking long term bets may well be a winner. Supposing instead that your investment strategy involved betting on companies named after a fruit, and you launched your strategy about ten years ago. You would have done pretty well. Does that mean your strategy will always work?

Anyway, whatever you think, Bill Gross – who sits at the upper end of the pantheon of great investors next to Buffett, Soros and Jim Rogers – wrote in an investment outlook he calls ‘man in the mirror’: “All of us, even the old guys like Buffett, Soros, Fuss, yeah – me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience…perhaps it was the epoch that made the man as opposed to the man that made the epoch.”

He said: “There is not a Bond King or a Stock King or an Investor Sovereign alive that can claim title to a throne.”

©2013 Investment and Business News.

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And talking about the real world, have you seen the latest forecast from the OBR – the Office of Budget Responsibility?

You may recall, the OBR was set up by George Osborne as an independent economic forecasting group to act as a kind of objective judge on economic performance. And in a master stroke, George turned a poacher into a gamekeeper by recruiting the then boss at the Institute of Fiscal Studies (IFS) Robert Chote  – who had been having great fun ridiculing government projections – to head the OBR.

As it happens, Mr Chote is funny. When he was top man at the IFS he made some genuinely amusing presentations, which may be why he became so popular with the press – he is a good man to quote, as well as good at livening up dull press conferences.

But the forecasts from the OBR are no laughing matter.

It originally projected growth for 2012 at 2.8 per cent. Now it is saying minus 0.1 per cent. It is forecasting growth next year of 1.2 per cent, but frankly it is guessing. It has no idea what next year, 2014 and then 2015 will be like. It might as well stick a pin in a piece of paper, and then carry on with the data muddle it has been working with.

The man who may be closest to the truth is Bill Gross, the world’s leading bond investor. He and his colleagues at Pimco have started talking about what they call a new normal.

“In the past decade,” said Gross recently, “machines and robotics have rather silently replaced humans, as the US and other advanced economies have sought to counter the influence of cheap Asian labour.” He went on to cite a report from MIT, which “affirmed that workers are losing the race against the machine.” And concluded: “Technology may be leading to slower, not faster economic growth despite its productive benefits.”

A few years ago, the benefit systems had become silly. The incentive to work had diminished. But be careful. Some people who are unemployed have done everything possible to get a job. It may happen to you, too. Even people who have enjoyed tremendous success in the past can find themselves armed with antiquated skills, and have to go from a senior job in business to being turned down for jobs paying the minimum wage.

In an era when technologies, such as 3D printing, make it hard to see where jobs will come from, being unemployed is becoming a sin. In his Autumn Statement George has said he is going to increase benefit payments by less than inflation. A year or so ago, the ‘Telegraph’s’ Nick Cowie argued that the unemployed should not have the vote at elections. See: A tax-based alternative to the Alternative Vote http://blogs.telegraph.co.uk/finance/ianmcowie/100010127/a-tax-based-alternative-to-the-alternative-vote/

Maybe technology is why the OBR keeps getting it wrong. Technology has created a new normal, and economists are so busy insisting that technology is not creating growth, that they miss the real point. It is changing the world, but it is making jobs all the harder to come by. There are solutions, but until the cause is acknowledged, the solutions will not be considered. By the way, there is a new book by Nassim Taleb – author of the Black Swan and possibly the most influential writer in the world at the moment – called ‘Antifragile’ which makes a related point. For that matter ‘The Blindfolded Masochist’ by Michael Baxter, makes a similar point.

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here