Bill Gross and the death of equities

Posted Feb 26th 2009 5:10PM by Peter Cohan
Filed under: Industry, Financial Crisis

Bill Gross is a big deal in bonds -- with $747 billion under management in his PIMCO. Gross emailed me yesterday because he was a bit put off by some of my recent media comments about him. I responded to him by asking him some questions about PIMCO and the general market. He thinks that equities are history and people should buy bonds instead.

Gross is obviously talking his book but in my interview with him, he made a very interesting point. He suggested that since bonds and preferred stock are senior to common stocks in the liquidation hierarchy of a company, in a slow growth environment, there is no upside to stocks, only downside.

The downside of stocks is that when a company liquidates itself in a bankruptcy, the spoils go to every other stakeholder before the common shareholder. In other words, common shareholders have nothing to look forward to in his view because companies are going to be paying out their meager cash to other categories of investors.

I think he could be right for a while, but eventually stocks will come back as soon as entrepreneurs can come up with world-beating new technology companies.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.

Tags: bill gross, BillGross, common stock, CommonStock, equities, senior stock, SeniorStock

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Reader Comments (Page 1 of 1)

2-26-2009 @ 9:58PM

klintb said...

Wrong again. I think people have figured out that when anyone makes general broad based statements like "equities are dead", they either dont know or have enlightened self interest driving the position.
All of the damage in the market will make people smarter about stocks and investment management. Anyone dealing with a salesman masquerading as an investment/wealth management advisor learned a pretty valuable lesson. As the market turns, and people get back into equities, it will become obvious the best method for a recovering lost capital will be in equities, not bonds. Earth to Bill.

2-27-2009 @ 7:00PM

Paul Bernard said...

Hey Bill Gross. When you going to unfreeze all that auction rate money you got clients stuck in for over a year now?

2-27-2009 @ 3:53PM

Tim said...

I agree, it's the same thing as saying equities are dead, buy gold. They all have one thing in common: assuming the economy will not rebound at some point. When the economy does rebound, will he be saying bonds are dead?