Active Portfolio Gambling

I don’t care how smart you are; you can’t predict the future. You can guess, and you might be right… or wrong. Some might call it betting a hunch. Except on Wall Street where it’s referred to as active portfolio management.

That said, according to the Wall Street Journal, another star manager at PIMCO has been actively investing badly. Apparently, PIMCO emerging markets bond fund manager, Michael Gomez, hoped to trounce his peers by making big bets (oops, sorry, active investment decisions) on on bonds in just a few markets that he believed would outperform in the future. 

One of those decisions involved betting (or as he probably prefers, investing) over 18% of the funds assets in Russian bonds. If you’ve followed the financial news over the past few days, you know how that’s working out for him. While the emerging markets bond index (which has about 8% in Russian bonds) is still up about 2% for the year so far, the PIMCO offering has lost about over 3.5%.

The euphemistic among us might say that Gomez “made a tactical allocation error.” I would say “he gambled and lost.” This same thing can happen to any active money manager, anytime as they continue try to predict something as utterly unpredictable as the future.

Read the Wall Street Journal article (subscription may be required).

Don McDonaldComment