If you are reading this you've probably heard of Warren Buffet. But have you heard of Ray Dalio? You can learn a lot about him here. Suffice it to say he's an investment guru who founded the largest hedge fund in the world, managing over $120 billion. Like Warren Buffet, he's questioning the value of the current market, click here.
Back in 2015, Ray Dalio went on to say that he felt like the economic conditions of today are similar to those in 1937. That's significant because 1937 wasn't kind to equity investors. The market dropped over 49% in 12 months. As they say, history doesn't always repeat, but it often rhymes. You can find his thoughts here.
Let me summarize his observations below:
- In 1929 and 2007, we see that debt was to plentiful and too easy to attain. We'd call it a credit bubble followed by a credit crisis in 1930 and 2008.
- In 1932 and 2008, the Federal Reserve responded with 0% interest rates. This started a "beautiful deleveraging."
- A stock market and risky asset bull market begins in 1932 and 2009. However, the business cycle could be ending. From 1929 to 1937, the stock market went up over 300%. From 2009 to 2019, the stock market is up over 300%. That means a normal "correction" is due as returns revert to the mean.
- Concurrent with the booming economy, international competition intensifies. In the 1930's, Germany and Japan were our competition. Today, it's China. The US and China are imposing tariff's on each other in a trade war that sees no path to resolution.
- Because of a booming market and an expanding economy, the Federal reserve has raised rates, also known as tightening. This has been happening since 2015 and paused after the rapid market pullback in fourth quarter of 2018. In the 1930's, with the benefit of hindsight, we can see that the tightening was too much for the economy and reinforced a downturn. Ray Dalio wonders if the tightening has been too much for the 2020's.
Of course, Ray Dalio doesn't have a crystal ball. Instead, like you, he's trying to put his ego, fear and greed aside to analyze where we are. I share this with you because as the market hits all time highs, it's healthy to remember that what goes up can also come down. That's the first tep to developing an investment strategy based on discipline.
I mentioned Warren Buffet earlier as well. Like Ray Dalio, he doesn't get happier as the market goes up. Naturally, his current holdings are doing quite well. But what's interesting is that he has a disciplined strategy that tells him to hold quite a bit of cash. That way, when good value presents itself, he'll be ready to buy. I know you've always heard that Warren Buffet is all about buy and hold. But as you can see here, he likes to exercise discipline when he buys. Is that timing the market. No, it's a well-thought out strategy.
My question is this: If two famous investment managers have a discipline investment strategy, what's yours? If you'd like to learn more about ours and how we can help you and your family click here.