From John Stepek, across the river from the City
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On Friday, the investment world was rattled by news of a major personnel shift.
Bill Gross – once known as the 'bond king' and head of the biggest bonds fund in the world – left Pimco for a much smaller rival, Janus Capital.
I could provide you with a poorly thought-out football transfer metaphor to give some perspective on this. But I have no interest in footie, so I'd just make a fool of myself.
Instead, I'll just suggest you look at the share price reaction – Pimco's share price slid by 3.5%. Janus, meanwhile, leapt by 33%.
That tells you what investors thought of the move. But what can the likes of you and I learn from it?
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Does the fall of Bill Gross signal a turning point for bond markets?
Why is Gross, now 70 years old, leaving Pimco – the company he founded? And for such a tiny rival? According to the FT, who spoke to "people familiar with the matter", he jumped before he was pushed.
There have been problems at the company for a while. Investors have been pulling money out of bond funds as the end of quantitative easing (QE) draws nearer.
But they have also been pulling money out because Gross – after years of beating the bond market – has been doing badly more recently. As Gillian Tett notes in the FT, this year his "flagship fund is in the bottom 20% of industry tables, measured by returns".
And there was some nasty and public dirty laundry washing earlier this year, when Mohammed El-Erian, the high-profile star viewed as Gross's successor, quit the firm.
In short, it looks like Gross went from being Pimco's main asset to loose cannon and liability in a very short space of time.
So why should you care? I think there are two main points of interest here. Firstly there's the significance to the bond market. Part of me wonders if this is another 'top of the market' bell being rung here. Just as Alibaba's success should give equity investors pause, maybe Gross's move is a huge warning for bond investors.
It may seem an odd thing to say – Gross hardly dictates the macroeconomic environment single-handedly – and it's true that there's no science to these things. But there is a reason that these sorts of events often happen at turning points.
Gross was the 'bond king' for so long because, as Tett notes, he spotted the big trend – the slow death of inflation – in the 1970s. He thrived in the multi-decade bull market that followed. But as the age of QE starts to draw to a close, he has struggled.
If you read his regular missives from Pimco, it was clear that he understood the world was changing. All that 'new normal' stuff was coined by Pimco and El-Erian. But you could also see that he was struggling to find a new narrative – a new grand storyline – that would explain the post-2008 world.
Now that he's finally fallen off his perch, you have to wonder if we're near a turning point. Something akin to what happens when the last bear in a bull market capitulates.
Management matters, believe it or not
But beyond that, to me this is a great example of why you can't really dismiss management when you're looking at a company. I often hear people quote lines from Warren Buffett or Peter Lynch to the effect that you should buy companies that any fool could run – because one day they will.
But this is rubbish. Or at least, it's frequently misinterpreted. Management is such an intangible that investors would often rather ignore it. So they're happy to take the line that it can be ignored.
But Buffett clearly takes management of his own company seriously – he wouldn't spend so much time agonising over succession planning otherwise. And one reason I worry about investing in Berkshire Hathaway is precisely that – what happens when Buffett is gone?
If a 'superstar' dominates a company, then you get a dangerous situation. While things are going well, no one questions anything. Their personality quirks – and everyone has them – are seen as part of their genius.
But when things start to slip, the cracks begin to show. You often find that success and rapid growth mean that the toughest questions have gone unasked, and people have sat back on their laurels. Attention to detail has gone awry.
Tesco is another great example. Sir Terry Leahy has largely escaped scrutiny over the latest pile-up at Tesco. But you have to wonder how much of this current trouble is a legacy of his overall strategy of squeezing suppliers, underinvesting in stores, and going for growth at all costs. The hard questions are being asked now that the growth strategy has failed – but the rot set in way before Leahy stepped down.
Our regular contributor Jonathan Compton looked at why management matters in a recent issue of MoneyWeek magazine and tipped four promising companies. We'll also be looking at more on Gross's story in the next issue - if you're not already a subscriber you can get your first four issues free here.
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The FTSE 100 ended the week on a positive note, climbing 0.2% to close at 6,639.
Airlines fared well. EasyJet was the top performer with a 3.2% rise, and International Consolidated Airlines rose 1.5%. Sainsbury's was the day's biggest faller, down 3.1%, and Morrisons slipped 1.8%.
In Europe, the Paris CAC 40 rose 39 points to 4,394, and the German Xetra Dax fell 20 points to 9,490.
In the US, the Dow Jones Industrial Average and the Nasdaq Compositeeach rose 1% to 17,113 and 4,512 respectively, and the S&P 500 added 0.9% to 1,982.
Overnight in Japan, the Nikkei 225 gained 0.5% to 16,310, and the broaderTopix rose 0.4% to 1,337. And in China, the Shanghai Composite and theCSI 300 each added 0.4% to 2,357 and 2,447 respectively.
Brent spot was trading at $96.38 early today, and in New York, crude oil was at $92.82. Spot gold was trading at $1,220 an ounce, silver was at $17.51 and platinum was at $1,300.
In the forex markets this morning, sterling was trading against the US dollarat 1.6240 and against the euro at 1.2808. The dollar was trading at 0.7886against the euro and 109.55 against the Japanese yen.
And today, construction group Balfour Beatty said profits will be £75m less than expected this year because of problems in its UK division. It is the third profit warning the company has issued this year. Shares fell by 20% in early trading.
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