Bill Gross: Past Performance in the Age of the New Normal

In the age where central banks have been propping up asset prices via the “wealth effect” as a way to lubricate “aggregate demand”, generating returns from investments requires unorthodox or unconventional or methodological templates.

So says Bond guru Pimco’s Bill Gross.

From Bloomberg (bold mine)

Bill Gross, manager of the world’s largest mutual fund, said the most renowned investors from Warren Buffett to George Soros may owe their reputations to a favorable era for money management as expanding credit fueled gains in asset prices across markets.

The real test of greatness for investors is not how they navigated market cycles during that time, but whether they can adapt to historical changes occurring over half a century or longer, Gross, 68, wrote in an investment outlook published today entitled “A Man in the Mirror,” named after a song by Michael Jackson.

“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,” Gross wrote. “Perhaps it was the epoch that made the man as opposed to the man that made the epoch.”

Gross, one of the co-founders in 1971 of Newport Beach, California-based Pacific Investment Management Co., is examining his legacy as the bond shop he built over four decades is seeking to adapt to an environment that looks very different from the bull market that fueled Pimco’s growth to one of the largest money managers in the world. The prospect of elevated market volatility, an aging population and climate change could make investing far more challenging in the coming decades, Gross said.

Bottom line: Past performance does not guarantee future outcomes.

Relying on historical data or statistics will unlikely be of a big help in the era founded on the deepening frictions from market distorting central banking inflationism and politicization of the financial markets via financial repression relative to changes in demographics, globalization and the information age.

To quote from the investing sage of Omaha (now crony) Warren Buffett,

If past history was all there was to a game, the richest people will be librarians.