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Published 06 December 2012 05:15, Updated 07 December 2012 19:24
What investments do you like at the moment?
Personally, I think you have to buy equities – even though I’m a fixed income manager. Bet you don’t hear that too often. The central banks are telling you that rates are going to be low for a long time, which means corporate funding is cheap, which helps risk assets like equities and high yield bonds. In 2013, there’s every chance the S&P 500 will put on a new high in the US, given the money they’re pumping into the system. The US Federal Reserve won’t turn off the printing press until they’re comfortable with jobs growth and that’s years away.
What are you avoiding or selling?
Sovereign bonds.In the G3 countries [the US, Germany and Japan] there’s not much capital gain in owning their bonds. I definitely wouldn’t fund the US government for 10 years at 1.5 or 1.6 per cent. We also don’t own any European corporate or bank debt, because we can’t quantify the political risk. We know we might be missing out on some capital gains if they rally, but in Europe at the moment it’s really a binary outcome. If the politics works out you make money, if it doesn’t you lose. We also don’t own many hybrids – the devil’s in the details with those. Like on November 9, the Bank of Queensland didn’t call one of its hybrids on the optional call date, so retail investors couldn’t get their cash. They were forced into BoQ shares.
What was your best ever investment decision?
That would be selling Lehman Brothers senior unsecured bonds back to Lehman a month before they went under. As Lehman was getting closer to bankruptcy, its traders were buying back their own bonds and selling Morgan Stanley and Goldman Sachs and others, which were a lot cheaper. They didn’t think they were going to go under, so they figured if they survived, those trades were going to make them a lot of money. And if they don’t survive, it’s all gone anyway. We certainly thought the risk was too high, we got a good bid – 94¢. I think we’d bought in at 98¢. They ended up at 20¢, so we got lucky. We lost a little bit on those bonds but we could have lost a lot more and it saved our company really. Lehman bonds were only 2 or 3 per cent of our portfolio but it was about reputation.
Now describe your worst one and what you learnt.
That’s a personal one, where I bought the equity of QLogic, a computer hardware company out of California. This is the early 1990s. I bought in around $US10, it goes up to $US20 – thank you very much. I’ll take that. The stock ended up going to $US160, so I took profits way, way too soon. Although of course it crashed spectacularly along with all the other tech stocks in 2000.
Who is your investment hero, and why?
My ex-boss from PIMCO, Bill Gross, for his uncanny ability to make returns over long periods of time and his willingness to listen to people and their trade ideas. He’d spend hours in meetings letting the team talk and never expressing a view. It stopped them becoming yes-men. Plus he is willing to change his mind. He was short US treasuries and it cost him quite a bit a couple of years ago. He cut the short, went long again, and made all the money that he lost back.