Hedge fund manager Ray Dalio is one of the most respected names in the industry and his Bridgewater Associates among the largest hedge funds in the world. Following are some teachings and investments from Dalio that could help investors make informed decisions.
Macro Trends: One of the themes to Dalio’s investment strategy is looking at macro trends. This includes paying attention to the price of gold and currencies.
A macro view also involves looking at the gross domestic product of the United States and inflation indexes.
Being a big picture thinker allows an investor to be able to identify buyers and sellers in a market and focus on supply and demand.
Looking at the macro trends has allowed Dalio to predict financial markets would suffer due to crazy lending and leveraging. Dalio predicted the housing and lending boom would end badly in 2007 and 2008.
Related Link: How To Invest Like Carl Icahn
Alpha and Beta: Dalio is credited with being the first hedge fund manager to separate alpha and beta. Alpha is the return over and above the market return. Beta is matching the overall market return.
Bridgewater’s two primary investment funds focus on these strategies, with the All Weather fund focusing on beta and the Pure Alpha fund focusing on alpha.
Using the macro trends and focusing on either alpha or beta has allowed Dalio to produce some strong returns. For example, while the year 2008 was disastrous for many hedge funds, Dalio’s Pure Alpha fund returned 19.5% after fees, beating many rivals.
Diversification: Dalio preaches diversification for investors. The investor believes it is more important to be a hitter of singles and doubles rather than focusing on home runs.
Dalio told CNBC that a diversified portfolio might consist of 30% stocks, 40% long term U.S. bonds, 15% intermediate U.S. bonds, 7.5% gold and 7.5% other commodities.
(Photo: David Fitzgerald/SportsfilePhoto, Wiki Commons)
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