By Tom Bradley

I have followed Bill Gross, the ‘King of Bonds’, for two decades. His long-term record is outstanding, although in recent years he’s been out of sync with the market and his funds have struggled.

I don’t always agree with Mr. Gross, but I wanted to highlight his latest monthly letter because it articulates well what I’ve been talking about (ad nauseam). In the piece, he muses about the end of the great bull run that began in 1981.

“When does our credit based financial system sputter / break down? When investable assets pose too much risk for too little return. Not immediately, but at the margin, credit [corporate bonds] and stocks begin to be exchanged for figurative and sometimes literal money in a mattress. We are approaching that point now as bond yields, credit spreads and stock prices have brought financial wealth forward to the point of exhaustion. A rational investor must indeed have a sense of an ending, not another Lehman crash, but a crush of perpetual bull market enthusiasm.”

Mr. Gross concludes by saying that he senses, “a secular bull market ending with a whimper, not a bang.”

I don’t think anyone, including the King of Bonds, can predict how or when this liquidity-driven bull market comes to an end. As investors, the important thing to recognise is that we’ve had a remarkable period of returns and it won’t always be this good. We should be well-diversified and not taking more risk than our long-term plan calls for. And most importantly, we should be mentally prepared to take advantage of lower prices, whenever they may come.