Guru Grades

Bill Gross: Top Bond Gun (Last Updated 10/7/08)

A reader suggested that we evaluate the forecasting prowess of Bill Gross, manager for PIMCO of the world's largest bond fund. PIMCO describes itself as "one of the largest specialty fixed income managers in the world..." The predictions/recommendations evaluated here extend as far back as February 2000 and come from columns in MarketWatch, CNN/Money and TheStreet.com. The table below presents highlights from his commentary and shows the change in the 10-year Treasury note (T-note) yield (as a good proxy for bond behavior) over the 21, 63, 126 and 254 trading days after the publication date for each item. Note that a decline in T-note yield means a gain in T-note price. Red plus (minus) signs to the right of specific items indicate those that the market has subsequently proven right (wrong). We conclude that:

• Most of Bill Gross' forecasts come from media reports on his regular market commentary at the PIMCO web site and from media interviews. The media is sometimes highly repetitive in reporting his forecasts, and we intentionally require at least a few weeks spacing for forecasts of the same type.
• In this evaluation, we focus on his forecasts for Treasury instrument yields, stocks and the Federal Funds Rate. He does comment frequently on other topics such as economic growth, inflation and the dollar.
• Mr. Gross sometimes makes multi-aspect forecasts which prove to have both correct and incorrect components. In a few cases, we evaluate a forecast with "0" and grade him both right and wrong.
• He famously (and incorrectly) predicted in September 2002 that the Dow Jones Industrial Average would fall to 5000.
• Based on our judgment, Bill Gross' forecast accuracy rate is about 47%, which is slightly below average compared to the accuracy rates of the stock market forecasters tracked at Guru Grades. His forecast sample size is moderate, as is our confidence in this score.

Here is an additional note to augment the tabular summary below:

From Murray Coleman in MarketWatch (1/3/08): "Morningstar's Fixed-Income Manager of the Year accolade [for 2007] went to Pimco's Bill Gross. His team running Pimco Total Return (PTTDX) has won the award three times now."

In summary, Bill Gross' accuracy rate in forecasting the movements of bonds, stocks and the Federal Funds Rate is less than 50%. Confidence in this conclusion is moderate.

We are not including these results in the Guru Grades snapshot because Mr. Gross focuses predominantly on bonds rather than stocks.

To discuss this review, go to the Guru Grades Forum.