Jeffrey Gundlach: From Broke Drummer to Bond Billionaire

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Jin Lee/Bloomberg/Getty Images Jeffrey Gundlach founded DoubleLine Capital in 2009.
When Bill Gross left Pimco -- the investment firm he co-founded, which manages $1.94 trillion in assets -- the shock was felt throughout the global financial community. For more than 30 years he was considered the most prominent bond investor in the world. So when he drove from his home in California's Newport Beach an hour north to meet with Jeffrey Gundlach at his Santa Monica estate to discuss a possible partnership, the symbolism was not lost on observers.

The king is dead. Long live the king.

That's how Gundlach was referred to –- the king of bonds -– in a 2011 Barron's cover story that highlighted the success of his own firm, DoubleLine Capital. But his route to financial royalty was unusual, and if not for one impulsive action, his life may have taken a much more obscure path.

Math, Philosophy and Music

Gundlach grew up in Buffalo, New York, and by his own admission, his family struggled to get by. However, a strong work ethic and a head for numbers helped him excel in school, where he got straight A's and a near-perfect score on his SATs. With the help of financial aid, he attended Dartmouth and graduated summa cum laude with a double major in theoretical mathematics and philosophy. Then in 1981, he entered Yale's theoretical mathematics doctoral program.

Two years later, a dispute with his graduate advisor over the topic of his Ph.D. thesis –- Gundlach wanted it to be "The Probabilistic Implications of the Non-existence of Infinity" –- caused him to drop out of Yale and head to out to California to join the Los Angeles music scene. With friend Bev Eyre, he formed the band Radical Flat.

In a 2012 interview with Business Insider, Eyre described Gundlach's musical style. "He was an incredible drummer. He could have made a career out it. He's was fast. He was excited; he never missed a beat, like a machine gun. He could play so many cool rhythms."

Opportunity from the Yellow Pages

But rock 'n' roll stardom was not in the cards, and by 1985 he found himself broke. "I had basically cardboard boxes for tables, and I sat on the floor. I had a black and white TV with a coat hanger for an antenna, and I needed a pair of pliers to turn the dial," he told Bloomberg on a recent podcast. But soon after, that tiny TV gave him an idea that changed his life.

"Lifestyles of the Rich and Famous" was counting down the top 10 highest-paying jobs in the business world. No. 1 was investment banker, which host Robin Leach said required "a hard work ethic and an analytical mind." Feeling that he possessed both, Gundlach pulled out the Yellow Pages and set about contacting investment banking firms for a job.

Investment banking firms don't generally advertise in the phone book, but there were listings for investment managers, and the naive Gundlach figured they were the same thing. So he sent his résumé to all 23 firms with boldfaced listings, emphasizing his background in math. He got one response, from TCW, which incorrectly assumed he was responding to an ad it had placed with a local college.

Despite his lack of financial experience, his interviewers felt he might be a good fit and asked if he was interested in fixed-income or equities. "I don't know what those are," Gundlach replied. Though taken aback, they explained that fixed-income were "bonds" and equities were "stocks." Having never heard of bonds, Gundlach chose "stocks." Fortunately for him, they recognized that his math skills would be more applicable to bonds, so he was hired, given a book on bonds to read, and told to be ready to start in two weeks.

A Quick Study, a Quick Rise

During that time, Gundlach devoured the book and derived from scratch all the formulas it presented, so that by the first day of work he knew more about bonds than anyone else in the firm. And within six months, he was managing a portfolio of a few hundred million dollars.

Gundlach stayed with TCW for 24 years until 2009, when he was fired for reasons that are still disputed by both sides today. Less than three months after departing, he had formed DoubleLine Capital with a dozen or so former TCW employees and already had over $1 billion under management. By 2014, that number had grown to over $50 billion. Factoring in Gundlach's compensation and equity in the firm, his net worth is estimated at just north of $1 billion.

Though he has largely abandoned his musical past, Gundlach retains one special connection from Radical Flat: bass player Nancy Draper, now his wife.

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Jeffrey Gundlach: From Broke Drummer to Bond Billionaire

Managed to get that raise or promotion? Fantastic -- now don't go out there and spend it all immediately. In classic "keeping up with the Joneses" fashion, too many of us see an increase in salary or a sudden windfall (like an inheritance) as an excuse to take our lifestyle up a notch. We buy bigger houses than we need, get the latest gadgets even though ours work just fine,and spring for fancy steak dinners just because we can.

​Instead, whenever your financial situation gets a boost, consider the best ways to put that money to work for you. The truly wealthy are those whose money continues to grow and earn them more, even when they're not actively doing anything with it.

The average American household that carries credit card debt holds a balance of around $15,000. If you're among those who have a credit card balance, you've probably seen the little chart on your monthly statement telling you how much you'll pay in interest over the next several years if you make only the minimum payment. (If you haven't, look at it.) The same chart will also compare that to a "suggested" payment that's slightly higher. 

​Our recommendation? Throw everything you can at paying your balances off as fast as possible. And make sure not to take on any additional debt in the future; if you can't pay for a consumer good out of pocket, don't finance it.
We don't demonize student loan debt the way we do credit card debt because we see an education as an investment -- and higher education often is the difference between one income bracket and another. Similarly, many people justify taking out a car loan by stating that they need a car to get to work.

​That said, debt is still debt, and the longer you take to pay it off, the more interest you'll pay. Once you've freed yourself of credit card debt, paying down your car and student loan balances should be next on your list.

Whether it's to handle an unexpected car repair, a sudden illness or a major plumbing problem, you should always have some money set aside to cover unforeseen expenses. Set up a regular monthly transfer from your checking to your savings account to earmark this money before you're tempted to touch it. If necessary, cut back in another budget category (like eating out or entertainment) to free up the funds to save more.

​Putting aside a little each month could prevent you from getting socked with a hefty bill you can't afford and then need to finance.

No matter your age, you should be adding to your retirement funds -- such as your 401(k) or individual retirement account -- each month. Just setting aside money sporadically won't cut it; you need to identify how much you'll need to live on once you stop working and monitor whether you're on track to reach that amount.

​Here's a quick-and-dirty rule of thumb: multiply your annual spending by 25. This is the amount you'll need in your retirement portfolio, if you assume that you'll withdraw 4 percent per year to live on during your retirement. In other words, you'd need $1 million in your portfolio to live on $40,000 annually. Creating a plan will help you make sure you're able to retire the way you envision.
A home is a big investment, and sometimes that investment doesn't wind up netting you the return you thought it would.

The biggest culprit is having too large a balance on your mortgage, which detracts from your own personal stake in the current market value for your home. The sooner you pay this amount down, the better your home equity will be.

​You also want to be careful when purchasing a new home. Buying in a neighborhood that's on the downward spiral or buying the most expensive home on the block, likely won't net you a good return when it's time to sell. Also take care to stay away from custom renovations (like turning the garage into a recreation room), which could negatively affect your resale value. 

Paying high investment fees eats away at your gains. And since your gains compound over time, this creates a domino effect that can really chip away at your wealth. Take a close look at your investment companies' fees and shop around to make sure they're not taking more of your money than they need to be.

If you don't have a long-term investment vision and are simply playing the market, you could seriously undermine your wealth-building potential. Stop paying attention to market fluctuations, media pundits and the stories of your friends and family. Instead, create your own long-term investment strategy that will maximize your overall returns. Resist the urge it play it ultra-conservative (or fall for get-rich-quick schemes) and educate yourself on the best way to make your dollars work for you.

​If you're having trouble making sense of your options or want a second opinion, seek the help of a trusted financial adviser.
Based on your experience and seniority level, education and industry, you should have a fairly good idea how much you ought to be making at your job. If you don't, check out a site like PayScale to get a ballpark figure.

If you're not making what you're worth, you're doing more than leaving money on the table; you're also losing all the compound growth and investment returns that money could be generating for you. Invest in yourself with professional development and continuing education, make the case for that raise or promotion, or seek out a company who will value you higher.

If you don't have proper insurance coverage, you're taking a very big risk that could come back to bite you. Too many people think the worst can't happen to them, but the hard truth is you can't predict the future, and scrimping on sufficient insurance is never a good idea.

Of all the things we're hesitate to part with our money for, adequate insurance coverage should not be one of them. No matter your age, everyone should be properly covered with:

  • Health insurance.
  • Disability insurance.
  • Homeowner's or renter's insurance.
  • Flood insurance (if you live in a flood-prone area).
  • Umbrella liability insurance (especially if you own a small business).

If a spouse or children relies on you for support, make sure you have a decent term life insurance policy, as well.

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