A Word from the Wise: Ray Dalio

What if I told you that you could spend 30 minutes and get a much better perspective on the market?  For most investors this would help them at a time many see to be a crossroads.

Here is a chance to learn from one of the best.

Ray Dalio is the manager of Bridgewater, the largest hedge fund.  Dalio started the fund in the 70's.  Despite his success he keeps a low profile.  Many average investors have probably never heard of him.  Bridgewater now has almost $90 billion under management after a gain of nearly 45% last year.

Normally we would not hear much about Dalio's thinking.  There was a recent article about the "culture" of the firm.  Apparently it inspired Dalio to make a response via a rare public appearance.  Having agreed to the interview, he also discussed various other topics.

In over 20 years of CNBC watching, this may be the most unusual interview I have seen.  It takes almost thirty minutes, but I guarantee that anyone watching with an open mind will learn something.  In fact, I recommend watching it twice.


Here were some points that I found to be interesting, enlightening, and refreshing.

  • The Squawk team showed some respect, allowing Dalio to speak for several minutes at a time without interruption.  If records were kept, he might have the top three uninterrupted sequences in CNBC history — all in one interview.  "Do you want me to explain this?" he would say.
  • Dalio would not be pushed into the "popular" position.  He was outspoken in praise for the Fed's actions.  He explains what would have happened otherwise.
  • Dalio sees a gradual loss in status for the dollar — moving from THE reserve currency to one of the reserve currencies.  He also views gold as a currency.  He thinks that major market players are under-invested in assets denominated in emerging market currencies and in gold.
  • He sees current government policy as gradual deleveraging when the country can print money.  He cites the UK and the US as examples.  Entities that cannot print money must restructure in a painful process (Greece, California).  He thinks that taking the pain slowly, 3% over ten years, is sound public policy.
  • He likes US equities for this year and probably next year, calling it the "sweet spot" of the cycle.
  • He sees stocks as attractively valued.  (No one asked him to refute the assorted methods asserting otherwise).

For a nice straight summary that you can compare with mine, check out Cullen Roche's analysis.

My Favorites

And here were my favorite themes, all familiar to regular readers of "A Dash."

  • He specifically avoided judgmental or political comments.  He emphasized that he made money by predicting what policy would be and how to profit.
  • When asked about something where he was not an expert, he said so!  This is a rare occurence on financial TV.  Most guests think that once they are on camera, they are experts on anything.  Dalio specifically avoided predictions on municipal bonds.  If only others would follow this refreshing example.

Investment Conclusion

I suppose that part of my enthusiasm for Dalio's interview is that many of his themes are my own themes.  Most investors would do well to consider the vastly different mind set of this successful manager.  He is not complaining about the Fed, market manipulation, distorted stats, or any of the eyeball-attracting Internet themes.  He is just quietly making money for his investors — lots of it.

He is not searching for disasters or the next black swan.  He is focused on the main investment themes.  He is looking forward, not at what happened in 2008.

My personal takeaways are to be open-minded about gold and emerging market stocks.  I include both in the ETF program, but perhaps I need to be more aggressive.

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  • Bill March 3, 2011  

    hi jeff,
    I rarely watch cnbc (anymore). I would like to say that I prefer bloomberg…but I can’t say that I’m a big fan of that one either. However, I did see the interview with Dalio. My sentiments were exactly of your own. I was stunned at the sudden change of tenor and temperament. I was reminded of the old Wall st Week in Review with Louis R. (spare me the spelling). Keep it simple. No herd mentality. No need for need for high stimulation. Just respectful and careful listening.
    I could listen again, but I was not actually sure if he favored emerging over domestic stocks, or not.
    Personally, I scaled out of high exposure to mining/xme and energy exploration/xop…plus a few energy stocks. Perhaps a case of trying too hard to protect profits. And, adding positions to japan/jof and new positions in china/caf and yesterday…india/pin. My ytd return is underpeforming but the contrarian in me is content. A little early for just counting two months. It is interesting to see a minority opinion emerging that emerging stocks are merely taking a breather. For those that are diligent at re-balancing…which I’m not….now strikes as a good time to do so rather than waiting for that once a year moment.

  • jb March 3, 2011  

    “He thinks that taking the pain slowly, 3% over ten years, is sound public policy.”
    Here I wished that someone would ask him – isn’t there an issue of moral hazard? Is it sound policy to spread losses which should have been taken by the ones responsible and instead spread it over all taxpayers?
    The risks remain, nothing changes and the system is more fragile than before. Yes, the Fed should have done what it did. But, why couldn’t they do it while enforcing better accountability in the financial system? I can understand that they did not want to do it at the time, but why not now?

  • Adrian Meli March 4, 2011  

    Jeff, thanks for the post, didn’t catch it on tv as had to run out the door but enjoyed it. He is about as smart as they come so everyone would be wise to at least listen to his thoughts. They have quite a think tank going in Connecticut and they aren’t always right but they are at a minimum very thoughtful about things. CNBC has shown a suprising ability to get increasingly more impressive guests, so perhaps their franchise is getting better. I think he was right about the Fed at the bottom but they are losing me these days-hopefully, there will be a soft landing as Dalio seems to think is the base case. – Adrian Meli