And here is the actual Bill Gross monthly news letter.
First off, I’d like to say that, as smart as Gross is, he builds up a bit of a straw man. He claims that, if the US economy has grown at 3% a year, and if stocks have returned an annualized 6%, then we must be skimming an extra 3% off the top. This is somewhat faulty logic. The 3% is merely an average growth rate of all companies, while the 6% is likely derived from some sort of index comprised of publicly traded companies. What’s more, shitty companies usually don’t make the index.
That being said, Gross is mostly right. Just because we have experienced rapid growth in the past does not mean that we will continue to do so. The next 100 years might not be as bearish as Gross predicts, but they may not be as bullish as the past would suggest, either.
Although picking a few individual stocks might still be a good way to generate alpha, a broad, diversified index might not be the objectively best choice you can make.