Key facts
- Bill Gross identified MLP pipeline stocks as his best investment.
- Gross cited tax benefits and high yields for MLPs like Western Midstream Partners.
- His worst investment error was buying 30-year Treasurys with 10-to-1 leverage in 1969.
- The Treasury trade resulted in a 50% loss within a month.
Bill Gross, the co-founder of bond giant Pimco, has shared details about his most successful investment and his most significant investing error. Gross stated that his shrewdest wager to date was the purchase of a portfolio of master limited partnership (MLP) pipeline stocks approximately three years ago. He highlighted Western Midstream Partners as an example, praising the substantial tax benefits associated with these stocks, where distributions are largely treated as a return of capital rather than dividends, thus deferring taxation until sale. These deferred tax liabilities can potentially be eliminated if the returns are passed on at death with a stepped-up basis.
Gross noted that MLPs offer yields twice that of similar corporate pipelines, with Western paying over 8% compared to Kinder Morgan's approximately 4%. He also mentioned that higher oil prices, fueled in part by geopolitical tensions such as the US-Iran conflict, have boosted storage and distribution fees for energy infrastructure companies.
Regarding his most significant investing mistake, Gross identified buying 30-year Treasurys with 10-to-1 leverage shortly after opening his personal account in 1969. He described this as an "expensive lesson about the dangers of leverage," which resulted in a 50% loss of his savings within a single month. This event taught him that "gambling belongs at the casino."
Gross has been a proponent of MLP pipeline stocks for several years, emphasizing their tax-deferred dividends that allow for reinvestment and compounding. He also pointed out that mutual funds' limitations on investing in LP stocks help support their distribution yields and valuations.