Worthwhile article by Ray Dalio

[kevink]

I’ll admit to skimming some of the historical analysis in Part 1 of this piece but found the last couple of decades of that section plus all kinds f Part 2 well worth a careful read. Dalio seems to me to be as good as it gets in providing deeply informed actionable advice. His recommendations won’t be popular with the Bogleheads crowd but those willing to look beyond plain vanilla stock and bond index fund portfolios are certain to find this lengthy screed of interest.

http://https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio/?published=t

 

[footenote]

Fascinating - thank you

 

[Rianne]

Wow, what an education. Somewhat easy to understand for someone like me. I'll bookmark and refer to this article. I plan to reread.

 

[Dtail]

So is anyone going to add gold to their portfolio?

 

[Big_Hitter]

gold!

 

[razztazz]

So is anyone going to add gold to their portfolio?

The way I read it, he uses the term "reinflation" and a reinflationary period but never actually says we're heading for "inflation" in the classic sense. ie a lot.

Also, the subtext is that this period should last about 10 yrs. I think we should all be able to hold on. None of it sounded particularly alarmist. Yes, gold might do better than stocks but unless you go fairly big and guess right how much of a difference will it make?

Unless I misread him.....?

 

[steelyman]

The “Permanent Portfolio” came to mind when I read the piece (not advocating for or against).

 

[RetireBy90]

Kevink, thanks for the post. I read the link and while I didn't follow completely all the details, I noted the similarities between the period following crash of 29/30 and our own crash of 08/09. I have noted that people who lived through the depression were affected for the rest of their lives and suspect that we will be affected in much the same way. Of course I have been wrong before, could be wrong about this also.

 

[RunningBum]

You've said about 4 different ways that it's interesting in worth a read, but not a single bit of a summary. Could you please provide one?

 

[ERD50]

You've said about 4 different ways that it's interesting in worth a read, but not a single bit of a summary. Could you please provide one?

I'm curious too. I only skimmed, but it struck me as a reasonable and insightful analysis of business cycles. I'm less convinced this leads to anything actionable. I'll try a more thourough read later, or maybe we'll get more insights along the way.

-ERD50

 

[MichaelB]

Thanks for the heads up.

This looks like a continuation of a longer discussion by Dalio and his views on the economy and investing. He wrote a book (h/t NW-Bound, here), the book can be downloaded in PDF without cost directly from his website, here. Although the table of contents says over 400 pages, it’s really about a 30 page analysis and the rest is appendices and data. Highly recommended for anyone who wants some more depth to the LinkedIn post in the OP.

 

[MichaelB]

You've said about 4 different ways that it's interesting in worth a read, but not a single bit of a summary. Could you please provide one?

Lack of economic growth will lead to zero level interest rates in the US, Euro area and Japan are already there. The sum of outstanding debt, continuing deficits and unfounded liabilities will lead to monetaziton of debt in the US and other developed economies. This will result in currencies losing value. Gold as a portfolio holding will provide substantial real return during that period.

 

[OldShooter]

... Dalio seems to me to be as good as it gets in providing deeply informed actionable advice. ...

Does he have a multi-year history of accurate predictions and few failed predictions? IOW a complete score card?

Until I see that kind of data I ignore the babble of noise from the gaggles of prognosticators. And I haven't seen that data from any of them yet.

 

[NW-Bound]

Can we use money to keep score?

Dalio started his hedge fund Bridgewater Associates out of his apartment in 1975. It became the world's largest hedge fund in 2005. His net worth is currently $18.4 billion.

Nobody can be 100% right, but Dalio is more often right than wrong judging from that record.

Now, there are people who make more money, such as Bill Gates or Bezos, but the latter make money from running businesses, and not from pure investing.

To know more about Dalio, read: https://en.wikipedia.org/wiki/Ray_Dalio.


PS. What I like about Dalio is that he runs his firm in a very democratic manner. Employees are allowed to challenge his views and to present their own analysis for all to hear.

 

[MichaelB]

Does he have a multi-year history of accurate predictions and few failed predictions? IOW a complete score card?

Until I see that kind of data I ignore the babble of noise from the gaggles of prognosticators. And I haven't seen that data from any of them yet.

This isn’t really a forecast, it’s more of an analysis and conclusion. Anyone interested in economic analysis and investing should read it.

I think this thread isn’t about his ability to forecast or whether his message is “right or wrong”, it’s an alert to forum members that Dalio’s post is available for reading.

 

[Jerry1]

The “Permanent Portfolio” came to mind when I read the piece (not advocating for or against).

Same here. I don't doubt some gold will cushion your portfolio against inflation, but I just don't think I'm willing to buy enough of it to make a significant difference. Even 10% on about $2M is $200K in gold. I can't see me going that high with gold in my portfolio.

The Permanent Portfolio has 25% gold. No way I'd be comfortable with $500K in gold. A bit of a dilemma because I'm in general agreement with the premise of the article and the Permanent Portfolio.

 

[NW-Bound]

Dunno about gold, but talking about bonds and stocks not doing as well in the future as in the past, even Bogle had been telling us that, time and time again.

Bogle of course does not advise buying gold, only that outsized investment returns should not be expected with stocks and bonds in the years ahead. Just hang on and lower our expectations is Bogle's message. That does not contradict what Dalio says.

And by the way, the above is also Shiller's message.

Warren's message is to hold stocks, because it's the best thing to have. He does not claim to know what the return will be, other than it beats "other stuff". That may mean that it will lose less than the alternatives. Warren never cares for gold, and that's a big contrast with Dalio.

PS. Dalio just turned gold bug now, as far as I know.

 

[Dtail]

Can we use money to keep score?

Dalio started his hedge fund Bridgewater Associates out of his apartment in 1975. It became the world's largest hedge fund in 2005. His net worth is currently $18.4 billion.

Nobody can be 100% right, but Dalio is more often right than wrong judging from that record.

Now, there are people who make more money, such as Bill Gates or Bezos, but the latter make money from running businesses, and not from pure investing.

To know more about Dalio, read: https://en.wikipedia.org/wiki/Ray_Dalio.


PS. What I like about Dalio is that he runs his firm in a very democratic manner. Employees are allowed to challenge his views and to present their own analysis for all to hear.

He is successful no doubt. That doesn't mean necessarily that a trading strategy that a hedge fund uses, can be translated to individual investment strategies. Hedge funds often also have access to information that the generic individual investor doesn't have.
The hedge fund also makes quite a bit of money on the management of assets, plus taking a piece of the generated profits.

 

[NW-Bound]

Not all hedge funds have the record of Bridgewater. In fact, many (most?) of them trail the S&P.

Yes, it is true that one cannot read what Dalio writes, then mimics what he does to make the same money.

As MichaelB said, his paper is an economic analysis. It is not a stock trading newsletter for which he is trying to sell subscriptions.

 

[Big_Hitter]

PS. Dalio just turned gold bug now, as far as I know.

i'm wondering if investing in a gold fund (TGLDX for example) would provide similar inflation protection?

 

[marko]

I noted the similarities between the period following crash of 29/30 and our own crash of 08/09. I have noted that people who lived through the depression were affected for the rest of their lives and suspect that we will be affected in much the same way.

The only way the crash of '08 affected me was that the subsequent recovery made me a lot more sanguine and less concerned about downturns.

Buying opportunities.

 

[NW-Bound]

Yeah, but no longer working, so I do not have new income to buy when the market crashes.

In order to buy, I need to sell some now to raise cash.

And I do not care if people call me a market timer. I already call myself one. Heh heh heh...

Or I can call myself an opportunistic rebalancer.

 

[NW-Bound]

i'm wondering if investing in a gold fund (TGLDX for example) would provide similar inflation protection?

Dunno. I read some time ago that some gold funds have assets in gold derivatives, and the expenses are high. Even holding physical gold requires paying for a storage vault, and that costs money.

Maybe one can buy the good old Krugerrand or Gold Eagle coins to stuff in his bank deposit box. I dunno. I probably will not have any.

 

[OldShooter]

... Can we use money to keep score?

Dalio started his hedge fund Bridgewater Associates out of his apartment in 1975. It became the world's largest hedge fund in 2005. His net worth is currently $18.4 billion.

Nobody can be 100% right, but Dalio is more often right than wrong judging from that record. ...

All I can conclude from that record is that, assuming the numbers are somewhere near accurate, he is probably a very good huckster. It tells me nothing about his investment record. Hedge fund hucksters frequently make lots of money even though their customers do not. In fact, that appears to be the normal case with hedge funds.

 

[NW-Bound]

Fair enough. One has to look at the return he generates for his clients, not for himself.

His AUM increased over the years, so I assume that his return has been better than the S&P. I am now curious to see his fund record, and will look for it on the Web.


PS. Dalio retired from an active role at Bridgewater in 2017. Over the very long run, he matches the S&P, but with less volatility.